The International Economy

the state of the international economy and its impact on our generation, i.e. The global job market, the G20 summit

Europe Featured Immigration International Trade Populism The International Economy

State of the European Union

Two years after the British people narrowly voted for a “Brexit” referendum to withdraw the United Kingdom from the European Union, the EU is more threatened than ever. Trade and customs negotiations between the British government and the European Union are at a standstill, nationalist parties blame the EU’s open border policy for enabling the passage of Syrian and and African refugees into Europe, and support for pan-European internationalism appears to be in decline. Political pressure from emboldened Eurosceptics like former London Mayor Boris Johnson and ardent Europeanists like French President Emmanuel Macron complicates the already fraught negotiations between the EU and UK. How these negotiations unfold may well determine whether or not the European system endures or succumbs to nationalist revolts in its member states.

At 11 PM on March 29, 2019, the United Kingdom is scheduled to exit the European Union. In the event of a “No-Deal” Brexit – that is, an exit without any trade or customs agreements with the European Union – the UK will be left without a legal framework for trade or border controls with the EU. In the short term, the result would be absolute pandemonium.

At present, EU-UK negotiations are deadlocked. Despite UK Prime Minister Theresa May’s insistence that a deal on border controls and other contentious issues such as aviation rules and fishing rights is still possible, disagreements persist without a resolution in sight. More critically, however, is the potential for a hard border between Northern Ireland and the Republic of Ireland.

The Good Friday Agreement of 1998, which concluded the Troubles – decades of sectarian violence between Irish supporters of the United Kingdom and those desiring an independent Irish state – established a ceasefire between Irish Republican guerillas and the United Kingdom. The division between British-governed Northern Ireland and its southern neighbor, the Republic of Ireland remained. As a compromise, citizens of Northern Ireland were given the option of being both Irish and British citizens, and the border between the two Irish states was softened to allow greater freedom of movement.

In 2016, Northern Ireland, still a part of the United Kingdom, overwhelmingly opposed the Brexit referendum and voted to remain in the European Union, but was outvoted by the rest of the UK. If the UK is unable to reach an agreement with the EU that includes free movement of citizens (akin to the existing Schengen Area), a political crisis may result. A hard border between a non-EU Northern Ireland and the Republic of Ireland, still an EU member state, could undo the fragile peace and inflame Irish nationalist and unionist passions.

While talks between the British government and the European Union stall, internal political pressure from hard-line Brexiteers like Boris Johnson, who demand a more complete withdrawal than even Prime Minister May is proposing, threatens the likelihood of a deal. Johnson and other proponents of total disengagement from European institutions are fomenting an internal revolt within the UK’s Conservative Party, claiming that Prime Minister May’s “Chequers Plan” preserves unacceptably close ties with the EU and fails to “take back control” from European customs and trade regulatory agencies. Johnson resigned his cabinet post in July in protest of the Chequers Plan, sending May’s government into a tailspin and renewing concerns about the feasibility of a Brexit deal. Any agreement reached between May’s government and the EU will likely be seen as too moderate by Johnson and other strict Brexiteers, but the EU is unlikely to accept a “Hard Brexit” akin to what Johnson proposes.

To further complicate matters, French President Emmanuel Macron has taken a noticeably tougher stance on the UK’s withdrawal from the EU, labeling Brexit proponents “liars” and rejecting May’s insistence that the EU accept the Chequers Plan as a framework for ongoing negotiations. For Macron, this hard-line stance on Brexit negotiations is not motivated by any pragmatic concern for the fine print of an eventual UK-EU deal, but by an overarching desire to preserve the integrity of the European system.

The European Union is extremely vulnerable, more so than at any previous time since it was founded by the Maastricht Treaty in 1993. The Greek bailout, in which the EU (mostly Germany and France) were obliged to extend credit to a fiscally-irresponsible and oft-corrupt Greek government, concluded on August 20th of this year, but financial instability in neighboring Italy, whose populist government under the Five Star Movement is violating EU fiscal rules as it increases welfare spending, has experts worried that another sovereign debt crisis is on the horizon. Nationalist movements are ascendant across Europe; along with the Five Star Movement, Germany’s AfD, France’s National Rally (formerly National Front), and others have capitalized on their constituencies’ opposition to the liberal democratic order, internationalism, and immigration embodied by the European Union.

Macron’s stance on Brexit should be read as an intentional show of force to impress upon other nations the costs of exiting the European Union. If the UK were allowed to exit the EU with favorable terms, this would likely embolden other Eurosceptics like France’s own National Rally. If other European nations believed that they could free-ride and keep the benefits of EU membership, such as the tariff-free common market, while avoiding the dues, restrictions, and open-border policy, they would likely follow in the UK’s example. Macron is thus determined to make the UK’s exit from the European Union difficult either to dissuade continental Eurosceptics in the event of a “Hard Brexit” or to encourage the UK to reverse course in face of the likely costs.

Even though France continues to insist that a Brexit deal is achievable, the French government has begun drawing up contingency plans, pointing to a real fear that no deal will be finalized before the March 2019 deadline. The French Parliament published a draft bill, which can be quickly passed in the event of a “No-Deal” Brexit, to address issues including work permits and residency visas for British nationals. According to French minister of European Affairs Nathalie Loiseau, the Eurostar train which connects England and France underneath the English channel might be barred from entering French soil, and British planes could be denied access to French airspace if no Brexit deal is finalized.

This would be a dramatic departure from the current state of affairs, which is essentially a state of open borders between the UK and continental Europe. At present, the journey from France to England is a 35 minute train ride under the English Channel, so brief that so-called “Eurocommuters” can live in one country but work in the other. Next year, that same train may be turned away by armed police at the French border.

The potential economic costs of Brexit are severe for both the United Kingdom and European Union nations like France. The Center for European Progress estimates that, even though the UK has not yet officially left the European Union, wary European investors and reduced cross-channel trade have already made a dent in the British economy, to the tune of “€26 billion [$29.49 billion] per annum – or €500 million [$567 million] a week.” The Center’s study projected that as a result of the passage of the 2016 Brexit referendum, the British economy is 2.5% smaller than it otherwise would have been. When the UK actually exits the EU, the economic repercussions will be even more severe, especially in the event of a “Hard” or “No-Deal” Brexit which results in significant barriers to trade and investment. The International Monetary Fund projects that a “No-Deal” Brexit would cost the EU around $250 billion, or about 1.5% of the EU’s GDP.

It is a very real possibility that, in the event of a “No-Deal” withdrawal from the European Union, the United Kingdom will become immediately isolated from the European continent and excluded from the European body politic for the first time in twenty years. If that comes to pass, continental nationalist parties will no doubt be emboldened, and the European experiment of free trade, free movement, and free people may find itself in mortal danger. At a time when illiberal sentiments such as hyper-nationalism, xenophobia, and distrust of globalism appear to be in vogue, the survival or disintegration of the European Union will likely determine whether or not the liberal international order can endure.

What does all this mean for confused American spectators? Since the end of the Second World War, the U.S has greatly benefited from this liberal order, built on rules-based international organizations, free trade agreements, and, ideally, respect for human rights. In large part, this is because the United States was the de-facto leader of the postwar West, hence the moniker “Leader of the Free World,” and has therefore traditionally held great sway over the United Nations, World Trade Organization, and similar institutions.

Nationalist movements which threaten the European Union are in many ways identical to the post-2016 American Right which calls for immigration restrictions, trade protectionism, and a withdrawal of American support for international institutions like NATO. With the U.S. itching to abdicate these responsibilities, if the European Union falls, so too may the international system upon which American hegemony has rested for the last 70 years.

November 5, 2018 0 comment

Environmental Change Featured Global Health Globalization History Human Rights International Trade Society and Culture The International Economy

Bayer Acquires Monsanto: Controversy & Implications for Global Agriculture

written by Sareen Ishanyan

Following two years of negotiations and approval seeking from various governmental bodies, the acquisition of the American agricultural biotechnology company known as Monsanto by the German pharmaceutical and life sciences giant Bayer was approved in spring 2018. Less than half a year later in August, Dewayne Johnson of the Bay Area was awarded $289 million in a civil suit which charged Monsanto’s infamous Round-Up Ready herbicide–also known as glyphosate–with causing Mr. Johnson’s diagnosis of non-Hodgkin’s lymphoma.

For years, Monsanto has been decried by environmentalists and farmers alike for its pesticides, herbicides, genetically modified seeds, and seed policies. Additionally, with Bayer’s acquisition of Monsanto, there are concerns for monopolization of the global seed market, as Bayer itself is a highly important player in the field of agriculture. This article seeks to understand the implications of a potential monopolization of the global agriculture system. First, however, this article will provide a background with a brief overview of the various controversies associated with Monsanto.

Criticism of Monsanto has spanned decades. During the Vietnam War, Monsanto was the largest American manufacturer of Agent Orange, an herbicide and tool of warfare used by the American military. Research in this area suggests that exposure to Agent Orange is associated with negative health effects. Vietnamese people and American veterans who were exposed to Agent Orange have been found to have higher cancer incidence rates than those who were not exposed. Meanwhile, the spraying of Agent Orange in Vietnam resulted in serious environmental problems, namely deforestation and reduction in the diversity of animal species.

Additionally, the seeds produced and patented by Monsanto have been a major source of controversy. One common charge involves cross-pollination lawsuits. For example, if a farm has planted the seeds of a patented GMO and, by way of cross-pollination, these seeds reach a neighboring farm and produce plants, it is often believed that Monsanto will sue, and has sued, the latter farm simply because of wind patterns affecting the movement of pollen. However, in reality, as one NPR article notes, there have been no such suits. But in 2013, the United States Supreme Court heard a seed saving case involving Monsanto. Based on patent law, the Court ruled in favor of Monsanto, which had sued a farmer from Indiana for saving seeds. Saving seeds refers to the practice whereby after harvest, seeds are saved and planted during the next year. Monsanto requires farmers who purchase their seeds to sign contracts in which they pledge not to save the patented Monsanto seeds they purchase in a given year. Still, this issue and the surrounding debate remain controversial as many question the practice of granting companies patents of living things. Arguably, patenting seeds is especially problematic as seeds are, both literally and symbolically, one of the most important living things on the Earth. Further, in India, over ninety percent of the cotton seed is controlled by Monsanto. In fact, some have even argued that increased suicide rates among Indian cotton-farmers is associated with Monsanto’s practices and patents of seeds. The evidence regarding a causal relationship is not conclusive, and many argue that a causal relationship does not exist; still, it is striking that Monsanto owns over ninety percent of the Indian cotton seed.

Additionally, the biotechnology of Monsanto has serious implications for agriculture and the environment. Round-Up Ready, also known as the chemical glyphosate, is the most popular herbicide used in agriculture. Glyphosate is a powerful chemical that is able to eliminate the growth of unwanted plants such as weeds. Yet glyphosate is also capable of killing valuable plants too. It is for this reason that Monsanto created genetically engineered crops that are resistant to glyphosate. The first of the company’s genetically engineered crop was the soybean in 1996. However, the use of glyphosate has the potential of developing so-called superweeds, which are resistant to glyphosate. Also, the development of such superweeds may induce the increased use of herbicides and pesticides by farmers attempting to contain such weeds. It is for these reasons that some protest Monsanto on environmental grounds.

Another issue is that there are concerns about the impact of glyphosate on human health. In 2015, the World Health Organization’s International Agency for Research concluded that glyphosate is a possible carcinogen. And, as discussed, a recent court ruling in San Francisco ruled in favor of Mr. Johnson, who claimed that Monsanto’s Round-Up Ready herbicide caused him to develop cancer. Monsanto, now considered a ‘unit’ of Bayer, faces thousands of other similar lawsuits, with many dying individuals in Northern California being given expedited trials. Still, Bayer is arguing that Mr. Johnson and the court ignored certain pieces of scientific evidence which claim that their is no link between cancer and glyphosate, and are seeking a mistrial.

However, it ought to be noted that the link between glyphosate and cancer is one that is under debate. For example, the National Institutes of Health and the Environmental Protection Agency have concluded that glyphosate is likely not carcinogenic. Monsanto has also been accused both of attempts to suppress scientific research reports which offer a negative assessment of Monsanto pesticides, and also instances of ‘ghostwriting’ scientific research findings which hold that glyphosate is safe for human health. For example, The New York Times notes of one 2015 article posted on the Forbes website that is believed to be ghostwritten by Monsanto but is credited to an academic named Henry I. Miller. Still, however, a study published in Scientific Reports found a link between glyphosate and fatty liver disease. Along with the recent court ruling, the possibly carcinogenic nature of glyphosate has been particularly salient in the last several weeks following a report that found traces of glyphosate in cereal such as Cheerios. The environmental research and advocacy group that published this report, Environmental Working Group, claim that such traces of glyphosate can says could “increase cancer risk for children.” However, as stated, findings about the nature of glyphosate remain inconclusive.

Amid the debate on the health and safety of glyphosate, there has been much talk in the European Union on the question of whether or not glyphosate should be a banned chemical. Many contend that glyphosate should be banned across all EU member states. While states such as Belgium voted against re-licensing glyphosate in the European Union in 2017, the vote ultimately ended in Monsanto’s favor with glyphosate’s license being extended for an additional five years. It will be interesting to see whether the acquisition of Monsanto by Bayer, a German company, will have any effect on the use of glyphosate in the EU.

Further, Bayer’s acquisition of Monsanto suggests that alterations in the agricultural arena await. First, it should be noted that there has been a recent trend of consolidation in the agriculture industry. For example, before the Bayer-Monsanto merger, the companies Dow and DuPont merged, as did Syngenta and ChemChina. As Mark Connelly, an agriculture analyst notes, Bayer’s acquisition of Monsanto indicates that “$1 out of every $3” that farmers spend on seeds, pesticides, and herbicides will go to Bayer. In other words, a third of the world’s agriculture supply is now controlled by one company–Bayer. This consolidation has farmers across the globe concerned. For many, the increased trend of monopolization means increased prices. This is supported by data and research from the Farmers Business Network. In research that focused on the price of corn seeds and chemicals, this group found that greater market share was associated with higher market prices for products. As mentioned, Bayer now controls a third of the market share. Dow-Dupont and Syngenta-ChemChina are not far behind.

Monsanto has historically been associated with a variety of controversial products and practices. Despite all this, it is undeniable that the science and innovation of Monsanto has been remarkable. For instance, in the 1990s, the ringspot virus threatened to destroy the papaya industry in Hawaii. However, Monsanto, which had a patent on transgenic technology, allowed for this technology to be used to create the Rainbow Papaya, a genetically modified papaya that is resistant to the ringspot virus. This saved the Hawaiian papaya industry. However, there is the the fact that Monsanto manufactured Agent Orange, a biochemical weapon with possible long-term health effects, that was used in Vietnam. But Monsanto was not the only company contracted by the American government to produce this war chemical. There is also the fact that Monsanto’s patents over biological entities, such as seeds, has also received considerable attention. However, sensational claims of Monsanto suing small farmers because of wind patterns and pollen drift appear unsubstantiated. Also, the health and safety of Round-Up Ready is a current and hotly-debated topic. Thus, while Monsanto has been a topic of debate for decades, it is not clear whether Monsanto has done more harm than good, especially with regard to the agriculture industry, human health, and the environment.
Finally, while the acquisition of Monsanto by Bayer means that, legally, the name Monsanto refers to a company of the past, doubtless, the issues associated with (what was) Monsanto will continue to persist. Further, this recent acquisition marks a highly significant moment for the global agricultural sector. It is especially important to see how all of this will unfold in the coming years.

September 24, 2018 0 comment

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Adam Schiff: Bernard Brodie Lecture and Interview

written by Andrea Zachrich

Congressman Adam Schiff came to UCLA to give the Bernard Brodie Lecture on the Conditions of Peace on May 31st of this year. Before the lecture, members of The Generation were fortunate enough to sit down with Congressman Schiff and ask him questions about the House Intelligence Committee- of which he is currently the Ranking Member- his responsibility to his constituents and the American people, democratic institutions and the rule of law, and the reputation of the United States internationally. He echoed and elaborated on many of these topics during his lecture and audience questions, which we were also able to attend following the interview. While there has been a summer that has past since the time of interview, many of his comments remain relevant as we’ve watched President Trump’s antics unfold over the past few months.

Congressman Schiff has a great sense of humor. He began the lecture by telling an anecdote about when President Trump called him “sleazy”. Schiff said that he felt the need to explain to his son what had happened in case the other children at school talked about it. He told his son that “the President called your dad sleazy”, and his son, wholly unconcerned, replied, “Can I call you sleazy?” Congressman Schiff used humor frequently throughout his lecture to highlight the absurdity of some of the administration’s recent actions, such as President Trump calling Vladimir Putin to congratulate him on his win. He even went so far as to mimic how that phone conversation might have gone, which had the entire audience laughing.

In the interview with us, however, Congressman Schiff’s tone was markedly more serious. We began by asking him about the partisanship on his committee in the House of Representatives, which is the House Select Intelligence Committee. The committee has been charged with conducting an investigation into Russian interference in the 2016 presidential election and possible connections between President Trump and members of his team and Russia. Despite the traditionally bipartisan nature of the Intelligence Committee, Schiff noted that one particular instance- what he called the “midnight run“– which divided the committee along partisan lines. The “run” occurred in March of 2017 when Republican Chairman Devin Nunes went to an undisclosed location to reportedly receive classified materials unmasking a conspiracy that claimed that the Obama administration had done surveillance on members of President Trump’s transition team. Nunes then went to the White House to present this evidence. However in a matter of days it as revealed that the supposedly undisclosed location was the White House. Schiff states, “But we learned within a matter of days that in fact the secret location he had gone too had been the White House and the materials he had received were from the White House that he was presenting to the White House.That kind of blew up the investigation because it became clear that the mission for the chairman was to protect the President at all costs rather than doing an objective investigation. The incident troubled Schiff for illustrating Nunes’ blatant disregard for the committee’s constitutional duty and for demonstrating the vastly different goals of its members.

We then asked Schiff what would change on his committee if Democrats win a majority in the House in the upcoming midterm elections and he becomes chairman. His first priority, he said, would be a return to “comity” on the committee, and blames the current chairman Nunes’ divisive actions for the current level of partisanship. When asked a similar question during the lecture, Schiff responded that he would like his committee to “get back in the oversight business”. Based on some recent special election results, Schiff may get his wish for his committee from the midterm elections. In a recent special election in Ohio, the vote came down to closer than 1 percent in a district that has had Republican representation in Congress for 35 years, the past incumbent consistently cruised to victory by 10 percentage points, and where Trump beat Hillary Clinton by a whooping 11 percent. These election results, while not representative of the entire nation, have led many to predict that Democrats may shortly regain the majority in Congress, making Congressman Schiff the leader of the House Intelligence Committee.

On a different note, one idea that Schiff kept highlighting throughout both the interview and his lecture was the breakdown of democratic institutions and the rule of law, and how this is affecting the U.S.’s reputation and negotiating power abroad. Schiff even went so far as to say “I think that the health of our democracy is very much at risk”. He mentioned numerous examples that ranged from President Trump’s tendency to ban reporters from news outlets he doesn’t like such as the New York Times and BBC from press briefings, to discussing the possibility of him pardoning himself for any possible crimes he may be charged with in the future. Additionally, the president’s constant Twitter tirades about the “fake news” press and special counsel Robert Mueller’s Investigation have led many of his supporters to distrust both the press and the Justice Department. The United States was downgraded from a full to a flawed democracy by the “Economist Intelligence Unit” the year Trump came into office, and has remained in the flawed category for its 2018 ranking, currently ranked 21 out of 167 countries for its democracy score. It seems as though Schiff may well be justified in worrying about the state of our democracy.

On a similar note, Schiff also noted his concerns with the way the rest of the world currently views the US, stating “our America first and everyone else be damned has really left us isolated and the rest of the world deeply concerned”. As evidence, he cited examples of this poor perception of America from our allies such as a Politico article titled “Leader of the Free World meets Donald Trump” referring to Angela Merkel, and Trump’s decision to pull out of the Iran nuclear deal. Since this interview, President Trump has continued to take actions that worry world leaders and isolate the U.S. on the world stage, such as placing tariffs on Chinese and European goods against the advice of most of the world’s economists and Trump’s troubling actions during and after June’s G7 meeting such as arriving late for the first meeting of the conference and acting outraged at Prime Minister Trudeau’s easily predictable retaliatory actions to Trump’s steel and aluminum tariffs. Congressman Schiff stated in the interview that “It’s hard to imagine a time when the United States has been held in lower regard around the world than right now”, but after Trump’s antics this summer, we may be even lower in the opinion of the world than we were in May when the interview was conducted.

This interview was conducted shortly before the first North Korea negotiations had occured. Congressman Schiff was glad to hear that the negotiations were back on after being canceled for a spell, but was concerned with this administration’s approach to North Korea, calling it “erratic and at times dangerous”. He warned that North Korea’s nuclear program was not going to be an easy problem to solve stating, “If it were not a hard problem, it would have been solved by any number of presidents in the past”. This statement has proven to be true since the interview. While President Trump and Kim Jong-Un did sit down for negotiations in June, the joint statement that came out of this was widely criticized as vague. President Trump conceded an important bargaining chip by agreeing to give up military exercises in South Korea while gaining no time table for denuclearization from the North Korean leader. Additionally, on August 24th President Trump called off talks between North Korean leaders and his Secretary of State, Mike Pompeo, citing concerns that not enough progress has been made in regards to the country’s denuclearization. Congressman Schiff’s warning has proven true; it seems that the problem of North Korean denuclearization has shown itself to be trickier than President Trump first believed it to be.

In a time where dishonorable behavior has come to be expected from the current administration, the political backbone displayed by Congressman Adam Schiff was refreshing. He asked his audience “What’s the point of being there [in Congress] if you’re not going to do what the country needs you to do when they need you to do it?” At one point during the lecture, he received an spontaneous round of applause from the audience after declaring he believes politicians should “do the right thing and still find a way to get reelected”.

It was a pleasure speaking with the Congressman and listening to his lecture, and it will be interesting to witness any potential changes within his Committee following the November midterm elections.

schiff 8

September 10, 2018 0 comment

President Trump greets onlookers in China alongside President Xi JinPing

Asia Featured International Trade The International Economy

Trump’s Isolationist America

written by Zach Emanuel

Swept into office almost a year ago now, Donald Trump was elected in part because of his foreign policy promise to restore American dominance and leadership to the world. A key component of this proposal was his assurance that the U.S would no longer be manipulated by China, and would bring the budding world power down to size. Rally attendees shrieked in support at then- candidate Trump’s commitment to no longer “allow China to rape our country.” He promised that once elected, it would be the United States that “would start winning again” on the world stage.

And yet an illustration of China’s leader Xi Jinping graced the cover of the October 14, 2017 issue of The Economist with the caption “the world’s most powerful man.” The description was derived in part from Xi’s speech that week at China’s Communist Party Congress in which he called on China to the lead the world on issues political, economic, military, and environmental. Additionally, the Congress’s decision to enshrine Xi into the country’s constitution, the first Chinese leader gain this privilege since Mao Zedong, further demonstrates his dominance. The Economist’s description of Xi is one that over the past 60 years has been used almost exclusively to describe America’s chief executive. Moreover it is the opposite of what Trump ensured would follow under his tenure.

So what went wrong? Since taking office last January, President Trump’s actions on the world stage have featured an isolationist bent. He has pulled out of the Trans-Pacific Partnership, slashed funding for international aid and investment, and left the landmark Paris Climate Agreement. These moves have consistently undermined his promise to restore America as the dominant player in international affairs and on the contrary have left a power vacuum which Xi and China- both stronger now than ever before- are ready to fill.

On his third day in office, President Trump signed an executive order pulling the U.S out of the Trans-Pacific Partnership (TPP) free trade agreement after asserting that it was bad American manufacturing. Trump claimed the deal would have continued the process of outsourcing to Asia and Latin America while reducing wages at home. The twelve-country pact- the largest in history- was signed with the goal of promoting economic growth, job creation, and innovation. While one can argue over the economic merits of the agreement, there is no question that the original deal would have put both economic and geopolitical pressure on China by projecting a message of American dominance in both East and South Asia. As Barry Naughton, an expert on Chinese international affairs at the University of California, San Diego says, the TPP has the potential to ensure that the “rules for the global economy will be written under predominant U.S. influence” and this makes China “extremely uncomfortable.” Moreover, by increasing trade with China’s neighbors such as Vietnam, Malaysia, and Singapore, the TPP would have drawn those nations “economically closer” to- and made them more dependent on- the U.S, hence reducing what Naughton calls “Chinese economic preponderance.” This maneuver would have given America more leverage and power in its dealings within the Asian Theater, effectively containing Chinese influence. Such action was therefore antithetical to Trump’s campaign promise to stop China’s growth as an international player and restore America’s “winning” tradition.

In addition to pulling out of the TPP, President Trump’s 2018 budget proposal slashed aid and investment to developing countries by 29%. As the largest development donor in the world, cuts to American aid will adversely affect the economies and stability not only of just neighboring Latin American states but developing countries in East Africa, the Middle East, and Southeast Asia as well. Likewise, cuts to foreign investment further signal an American retreat on the world stage and threaten Trump’s pledge to maintain the U.S’s role as the one indispensable nation. Even if aid fails to benefit the U.S economically, as the President claims, the cultivation of strategic partnerships that aid and investment can foster across the world are of the utmost importance to America if it wishes to maintain international authority. It should come as no surprise that states receiving American aid have an incentive to stay on good terms with the U.S. by voting alongside it at the UN and other international bodies or adopting American-oriented foreign policies. By cutting aid however, Trump is encouraging these allies to seek out other foreign powers- specifically China- for which to tailor their policies towards. For instance, after lashing out at Pakistan on Twitter earlier this month for not doing enough to crackdown on terrorism in its midst, the State Department announced a suspension of aid to the long-time strategic ally in the War in Afghanistan. Already China is pouncing on the opportunity to draw the nuclear-power closer into its orbit by praising Pakistani anti-terror efforts, reiterating Chinese commitment to Pakistan’s safety and security, and reminding the nation’s leaders of China’s pledge to invest $57 billion into rebuilding the country’s infrastructure over the next several years.

Furthermore, if developing nations, as a result of cuts to American foreign aid, feel they can no longer depend on the U.S. as a reliable partner in their quest for growth, they will seek out other economic benefactors that are. In the midst of President Trump’s cuts to such activities, over the next decade China intends to invest well over a trillion dollars in critical transportation and energy infrastructure across the developing world via its One Belt, One Road (OBOR) initiative. OBOR projects include the New Eurasian Land Bridge, a railway that seeks to link China to Central Europe, as well as the construction of a number of ports in Sri Lanka, Pakistan, Djibouti, and numerous others throughout Southeast Asia and Oceania. However as Christopher Balding, an economics professor at Peking University tells it, the project’s purpose is not so much to bring economic benefits to recipients of Chinese aid but “more like a diplomatic effort for [Beijing] to win friends and influence people.” Yet again, by cutting foreign aid and investment, Trump is playing into the hands of Xi and the Chinese to the detriment of American interests.

Finally, Trump’s decision to pull the United States out of the landmark Paris Climate Agreement is also incompatible with his assurances to rein Chinese influence. With climate change being the issue that leaders see as the biggest threat to our world today, the Paris agreement was a prime opportunity for the U.S. to demonstrate its commitment to, and leadership in, solving a global problem. By pulling the U.S out of the agreement, Trump is proving America’s unwillingness and inability to keep its promises as well as a reluctance to lead. By reneging on our commitments to the international community, an opportunity is again left for the Chinese and Xi, who just before Trump’s inauguration called on all signatories to the agreement to “stick to it instead of walking away…as [it] is a responsibility we must assume for future generations.” President Trump’s decision to pull out of the deal cast a pall over the prospect of American leadership on the most important of global issues.

If the President truly wanted to live up to his foreign policy promise to restore American authority in international affairs and stop China’s rise as a global superpower, he would strengthen the U.S.’s economic and diplomatic ties with East Asia by remaining in the TPP, demonstrate American commitment to its allies as well as the growth of the developing world by bolstering foreign aid and investment, and remain an active member of the Paris Climate Agreement as a way to prove America’s ability to lead on the defining issue of the 21st century. By backing away from these commitments however, Trump’s actions have consistently undermined his assurances as he leads the U.S further away from the international dominance he seeks to restore, and instead leaves a void for a nation he calls our “enemy” to fill.

January 18, 2018 0 comment

"Leaders of TPP Member States" Source

Featured Globalization The International Economy

Redefining International Interdependency: The Trans-Pacific Partnership

written by Justin Schmerler

The Trans-Pacific Partnership (TPP) is the most revolutionary, comprehensive international agreement that any country has ever signed. Since the end of the Second World War, the U.S. has pursued a general policy of trade liberalization, and President Reagan began to more aggressively do so in the 1980s. This kicked off a new era of globalization largely defined by increasingly interconnected nations, cultures, and markets that continues to this day, and has come to define the world community. Unfortunately, this manner of embracing globalization through trade does not account for many of the most important societal developments and issues today. Instead, it favors an almost purely “economy-first” approach. In an age of rapid globalization-driven policy reforms, the TPP provides promising insights into potential future changes and new directions the expanding process of international interdependency could take.

The TPP is a proposed agreement between twelve Pacific Rim nations that account for nearly forty percent of global GDP, with a value of intra-group trade at $2.08 trillion in 2014. The 5,500 page agreement contains thirty chapters on topics ranging from E-commerce to Investment to Intellectual Property. Although the reduction in barriers to trade is highly impactful and affects roughly 18,000 tariffs, the TPP goes beyond just trade liberalization. The TPP represents a historic move towards a more modernized and globalized society, and indicates a shift away from solely economic-based policy towards a more responsible global framework.

The TPP attempts to address modern challenges at the forefront of recent international debates. A prominent example of how the TPP is the most advanced, modern international agreement is the twentieth chapter, “Environment.” Many of the United States’ FTAs have included environmental provisions; however, these provisions have been rather toothless. The US-Australia FTA, for example, essentially contains an agreement to comply with the existing environmental transparency laws and excludes those laws from the agreement’s dispute settlement provisions. Japan, one of the most environmentally responsible countries in the world, has signed 24 FTAs (sometimes called Economic Partnership Agreements) and not a single one contains an environmental chapter or even a side agreement on environmentally responsible policy. Requirements within the TPP Environment chapter, like the ban on subsidizing fishing of overfished stocks, are subject to the agreement’s dispute settlement mechanisms. This means states will punish others for non-compliance. This new, more mandatory approach is indicative of a new set of policy initiatives aimed at pursuing a more conscientious form of globalization.

There are countless other sections in the Trans Pacific Partnership that represent unprecedented advances in achieving transnational regulatory harmonization. Nevertheless, there are plenty of counter-arguments cited as rationale for not signing the TPP. Liberal Democrats worry the Investor-State Dispute Settlement (ISDS) provisions will undermine the environment chapter, though even if they did that’s hardly an effective argument for tossing the agreement altogether. It’s better to have environmental protections that very occasionally are difficult to enforce than to have absolutely none at all. Moreover, some members of the U.S. Congress from both parties tend to argue (rather loudly and simplistically) that TPP will destroy jobs, even though anyone with even a basic understanding of economics knows that the effects of free trade on employment are far more complex and nuanced. Yes, liberalization of trade destroys jobs in certain industries. This is through a process known as “job churn,” by which liberalizing trade disrupts employment to the detriment of some industries and the benefit others. Critically, though, the number of jobs lost is outweighed by the number of jobs created by liberalizing trade. Perhaps that’s why most experts say that although some jobs, mainly manufacturing ones, will be lost due to the TPP, a higher amount of jobs will be created, and in higher-paying industries. These are just some of the many hotly contested issues that abound discussions on the TPP.

One can find countless responses to the vast majority of arguments in favor of ratifying the TPP. However, there is one main argument in favor of TPP that its opponents have yet to devise a viable counter-argument to: Failing to sign the TPP cedes the strategic and economic high ground to China, and potentially destroys any opportunity for spreading progressive regulation to some of the key economic powers in the world.

A common mistake made when analyzing the TPP is assuming a failure to ratify is tantamount to preservation of the status quo. It is very much not. As the US Congress quibbles over whether or not to ratify TPP, China is vehemently pushing an economic agenda of its own in East and Southeast Asia. For years, China has been racing to complete the Regional Comprehensive Economic Partnership (RCEP). RCEP includes all the TPP nations outside the Americas, in addition to India, South Korea, Indonesia, the Philippines, Thailand, Laos, Myanmar, and Cambodia. Taken in terms of population, RCEP nations account for nearly half of the world’s population. Crucially, RCEP includes virtually none of the countless progressive, modern regulatory advancements provided for in the TPP, like environmental protections, and would allow China to dictate the terms of economic activity for 50% of the world, leaving the United States to play by someone else’s far less comprehensive rules in Asia and elsewhere. In short, RCEP represents the sort of economy-first approach to international cooperation that has, for decades, failed to address some of the most pressing issues facing the global population.

Failing to ratify TPP and allowing RCEP to become to law of land in the world’s fastest-growing region would be nothing short of a catastrophe. Liberal Democrats would never see the improvements in human rights, labor, and environmental standards that they so-love to complain the TPP lacks. Conservative Republicans would have actively participated in the act of ceding greater economic authority to China, which they and their presidential candidate erroneously attribute much of America’s problems to; and the world would remain on its current course of globalizing trade that has failed to solve so many paramount issues.

This article says little of the highly complex economic implications of the agreement that both proponents and opponents often oversimplify to advance their positions. The TPP’s ratification, unfortunately, is far from guaranteed and if ratified, it will be some time before the public can get beyond mere projections and truly begin observing tangible impacts. This article is simply a recognition that in the era of rapid and seemingly uncontrollable globalization and ever-changing centers of economic growth, the TPP provides the global citizenry with a glimpse into one potential future of international cooperation. The TPP transcends the economic metrics and market-based approaches that have dominated international cooperation for decades, and endeavors to fundamentally improve the manner in which governments around the world embrace the phenomenon of globalization.

October 24, 2016 0 comment

From Left to Right: Burkle Center Director Kal Raustiala, UCLA Professor Arnold C. Harberger, Deputy-Director Alexandra Lieben, MIT Professor Esther Duflo, Holt Alden, UCLA Professor Edward Leamer, Arturo Siguenza

Featured The International Economy UCLA and the World

Randomized Approaches to Development: An Interview with Economist Esther Duflo

written by Holt Alden

Last week, Generation Editor-in-Chief Holt Alden and Editor Arturo Siguenza spoke with world-renowned economist and Massachusetts Institute of Technology (MIT) Professor Esther Duflo during her visit to UCLA. Professor Duflo is the co-Founder and co-Director of the Abdul Latif Jameel Poverty Action Lab (J-PAL), and focuses on development economics and poverty alleviation. The interview covers a broad range of topics, including the use of randomized control trials, effective policies for governmental organizations like USAID, and advice for students looking to work in international development. The following is a transcript of the interview, edited for brevity and clarity.

Arturo Siguenza (AS): In your experience using randomized evaluations, has there been a development puzzle that has been particularly challenging, or that you consider the biggest puzzle you’ve tackled?

Esther Duflo (ED): Not really, in the sense that most things get partitioned away into smaller things that we can approach, so it’s hard to talk about one big problem. But there are things that are… if you ask me whether there are domains that I understand better after fifteen years of conducting randomized trials, than others, then that is true. For example, one key problem in developing countries is the quality of healthcare, that is really terrible, I couldn’t tell you that I have a good idea of what to do about it. I have maybe a better idea of what the nature of the issue is, but I don’t really have any idea, or the beginnings of an idea, of what solutions would be to improve the quality of healthcare. Whereas there are other domains, like for example in education, where I have a better sense of the problem and what could be done, even if I am aware that there are political constraints to implement what would be done. So there are certainly issues that are a bit thornier than others, and healthcare is certainly one of them.

Holt Alden (HA): Tied into that, you have a lot of experience with a whole host of different types of [development] variables. Are there any that have changed your perspective on poverty, specifically, or that you really want to focus on going forward?

ED: I tend to jump from question to question, partly because, as a reaction to the fact that a lot of development work, in particular in international institutions and other things, tend to be very siloed. So people are education experts, or health experts, or they are agricultural experts, but in fact when you are looking at, you know, a household as a unit, they are involved in all of these things and all of these decisions tend to be taken together. So the fact that they have health issues has impact on their business, and the fact that their business is very risky has impact on their health.

So I never really saw myself as becoming a specialist in one topic, as opposed to always trying to keep in mind how all of these things are interconnected. Because each of my projects is reasonably narrow, and one thing at a time — not to become narrow as an economist — I keep circling around, shifting perspectives, shifting projects, as a way of keeping honest.
Esther Duflo

HA: Do you feel like that has been effective for you in your studies? Have you been able to relate them together?

ED: Yeah absolutely. That is kind of what we tried to do in Poor Economics, our book, with Abhijit Banerjee. The book is structured by chapter, which are by theme, but at the end there is really an effort to say ‘what have we learned’.

AS: Your work has been focused on utilizing randomized control trials. However, it can be argued that this removes the local context and local demands from these projects by universalising the development issues. What is your take with balancing the local context with your randomized trials?

ED: So I would almost say the opposite, that the randomized control trials are extremely local because they are always conducted in one particular area. I guess you could conduct them in several particular sites together but, even then, each site you would have to know pretty well and understand pretty well. In fact, the most common criticism of randomized control trial is the opposite, that it’s very local, that being so local it loses the ability to generalize from one place to another, so it’s funny that you should ask the question the other way [laughs].

It’s basically impossible to conceive of a good project without having a very good sense of the reality in the field.

And I think that’s one thing that makes development economists, in particular people who run randomized control trials, different from many other people, in particular bureaucrats in developing countries or people who work in large organizations. We often have a much better sense of the particular realities that people confront in a particular problem.
Esther Duflo

AS: Have you ever had challenges from a local bureaucrat that is opposing what you are trying to do?

ED: Not really. The worst that can happen, and that can be really bad, is sluggishness, when you need something and it doesn’t happen. And the best that can happen is actually cooperation. We have great projects that we have done in coalition with local governments where you have people who are actually very committed to what they want to do and very creative. So one big goal of J-PAL as an organization is to nurture champions within bureaucracies, identify them, and then work with them.

So people are education experts, or health experts, or they are agricultural experts, but in fact when you are looking at, you know, a household as a unit, they are involved in all of these things and all of these decisions tend to be taken together.
Esther Duflo

HA: With the randomized control trials, similar to what happens in medicine, have you experienced any trial or variable that works so well that you’ve ended the experiment? Are there any ethical dilemmas that you’ve faced in your randomized control trials?

ED: Not really, of the first type — that things work so well we’ve had to stop the trial — because the nature of the data collection… I think it might change now with tablets and stuff like that where we get data coming back soon… but until fairly recently the only way we could get data is going out into the field and doing a survey. The data is coming in too slowly to really understand something…

HA: Or after the experiment…

ED: After the fact anyway. So I have not found myself in a situation where I have thought, “Oh geez this is working so well I should stop.” But there are particular issues of other nature that arise. There have been some projects that I haven’t done because I thought that they would be difficult to do ethically. And in these cases it’s never the fact that I randomize is a problem, but it’s the fact that we always randomized when there is some presumption that it might not work — but at least some presumption that it might work — so you have at least some uncertainty to justify the experiment. But there are cases when you feel that in the process of collecting the data you would learn things that could prompt, or should prompt immediate action, but you wouldn’t want to intervene at the time because that would jeopardize the experiment. That’s the type of situation I have avoided, where sometimes I have not done projects.

AS: In the same sphere, with ethical challenges that may arise, a lot of development projects have the tendency of going fad-to-fad. Have you had any experience dealing with this tendency? Or using methods to dissuade this?

ED: It’s about trying to get away from that, trying to generate evidence on things, things that might be fad or might not be fad. So one of the things we run into, we evaluated microcredit programs which certainly have been a fad, or at least were very popular maybe about ten years ago. We collected one evaluation, and found mediocre results, not very bad and not very good. So everybody said “Well, maybe that doesn’t generalize”, we also said “Maybe that doesn’t generalize, maybe it was just that it was not good, who knows.” So we waited and then some people generated other studies like that. When there were seven studies together, we published them all together in one place and then there was no escaping that that thing isn’t working so well. I think it did some something to the fad.

AS: Did you face any problems with people that were very invested in microfinance?

ED: Yeah, microcredit has been an issue because the people who are… it’s not the case in all programs, there are a lot of organizations that just do things because they want to make a difference but if they find out what they do doesn’t work they move to something else. That doesn’t trouble them more than that, they just want to be helpful. They are not married to one program.

But microcredit is different. A lot of people who are in microcredit are deeply invested in it and there have been two kinds of reactions. There have been reaction of organizations saying well that’s useful, we need to change what we are doing. That doesn’t mean people don’t need credit, it means that we need to restructure the offering to better meet the financial needs of the poor. And then there are people who just were upset and tried to make it go away. But it’s not going away [laughs]. I can’t make it go away.
Esther Duflo

HA: Do you normally work more with private organizations or more with governments, especially on the ground?

ED: So early on, when we just started, we worked mostly with NGOs, but now we work a lot with governments. I don’t know what the balance is across projects but certainly if you look at the most recent projects, there is a lot of government work.

HA: Have you felt that [government work] has been more or less effective, or less fast?

ED: It is less fast, it is more work. It is like pulling teeth. But I don’t know if you could call it more or less effective. Working with NGOs has a lot of advantages, in particular the fact that you can, if you have a good partnership, you can control pretty well what’s happening on the ground because they know pretty well what’s happening on the ground. So you know what you’re doing. If you’re interested in evaluating an impact of a particular action — if you manage to do it well — then working with an NGO is much better.

On the other hand, when we move to policy many things happen. The scale changes, the targeting changes, the quality of implementation changes and you’re not going learn that by working with NGOs. If you want to know the effect of policies… if you want to learn about people it might be more effective to work with an NGO and manipulate just one thing and manipulate it very well. That might be a first step in some developing-a-policy type of continuum. But if you’re interested in changing policy, that first step might be necessary but it’s not sufficient. It serves different purposes. But it’s definitely more involved by the nature of the of the exercise.

AS: In J-PAL have you focused on working more with NGOs or with government organizations?

ED: So there has been this shift. Generally we were working more with NGOs and now there is a lot of work with governments. But it is also a question of age. Younger people work more with NGOs because they need results quicker and they have less money. Once you are a little established you can take more risks and you have more time. Even within J-PAL if you looked at the age of the people who run projects, it would be pretty well correlated, I’m guessing.

AS: Have you seen a type of development project that has been receiving more funding recently? That has been more popular?

ED: There is a lot of interest in governance issues. Governance, corruption, et cetera. So that’s an area that gets easy funding. There’s a lot of interest in gender issues. There’s a lot of interest in crime and post-conflict instability, like fragile states. These are the areas that have a lot of funding lately.

HA: If you were in charge of something like USAID, or some other government agency here, is there some step that the U.S. could take in order to better support developing countries?

ED: I was a member of the President’s Global Development Council, so I can tell you what we said. There were three pillars. One was focusing on environment and climate [change], because it’s going to become a poverty issue and a lot of the problem is generated in the US. It needs international leadership, it’s not something that countries can really deal with on an individual basis. The second was public-private partnership. I have less to say about that, that’s less my area of interest. And the third one was innovation.

So it was, basically, saying look, the aid budgets are small. They are becoming smaller and smaller, both in absolute value and as a fraction of what developing countries have to spend because of how the world is going. Therefore the share of the US in the aid budget is falling, because there are countries like Brazil and China who are now spending a lot of money on other countries.

So if we don’t do anything, if we continue building a hundred schools here, and paying some beltway bandit to do some half-hearted agricultural project there… we are doomed to irrelevance. The only way to become relevant and really helpful is to take the lead on generating innovation.
Esther Duflo

Not just innovation as in widgets, but innovation as in policy innovation. How do you do that? By devoting a considerable amount of your own budget –instead of just doing things– doing things to evaluate them. Or by scaling things up that have been scientifically proven to be effective in helping countries to scale them up. Or by supporting countries to create such innovation units within their own government. So that’s sort of the things we are pushing. I think if I were in charge of USAID I would try to push on the third, on this innovation lever. There is something at USAID called the Development Lab, I think, and they are very proud of it and rightly but it’s about two people [laughs].

AS: Commenting on something you said about not just policy innovation but also tech innovation, has there been a particular technological innovation that has really come up in development?

ED: Cell phones. Generally I’m reasonably skeptical of technology but the cell phones has just… in the space of very few years, it is everywhere and it’s really changed the way that everything works. So cell phones, coming next is the smart phone. I really think it’s going to make a difference. Then, already there but for now just in Kenya, is mobile money. It’s not just in Kenya, its Kenya, Bangladesh, Pakistan, but it’s really huge in Kenya. In Kenya, however you look at it, it seems to be changing lives.

AS: Has there been a particular method of disbursing, or trying to get cell phones out there to people in developing countries? Or has it just grown on it’s own?

ED: No, you know Nokia is a very cheap phone — has very cheap phones. They just spread, people find it useful. You think of innovation that has really commercially succeeded, you think of the cell phone and mobile money and microcredit, to some extent. But microcredit, I don’t know if it has… it’s just a commercial success.

HA: Regarding the cell phones, I think that has definitely been pushed and helped by processes of globalization and has been a really positive benefit. Do you think that globalization overall has helped or hurt impoverished nations? Or is it sort of a balance?

ED: I have no idea. I’m not very good at this type of question, I don’t think anybody knows. What we do know is that there are some distinct positive benefits, like the cell phone, but we also know there are distinct negative impacts on distribution. When you’re looking at India and the districts that were most affected by the rapid liberalization in the ‘90s, these places became comparatively poorer compared to other places less affected by the removal of the trade barriers. So we do know it affects distribution in the poor countries and the rich countries. I think these are the two things we know.

I don’t know the extent to which.. people are suggesting that as countries become closer together and trade more, they grow more. This worked on the Panama Canal and the advent of plane transport, which made some countries which were previously effectively very far away now closer by, and seem to be trading more and becoming richer. So there is some indication in that sense. I think the question of trying to put this together and asking whether it’s a positive or a negative doesn’t make sense. Because whatever is negative has to be addressed anyway and in principle could be. It shows something of our inability to redistribute gains. But there is no theorem that trade produces no losers unless you are able to redistribute. That seems to have been a big lesson.

AS: Are there particular organizations that you’ve seen on the rise? Startups or organizations like USAID who have had major projects that have been making a difference lately?

ED: You want me to name specific organizations doing specific things?

AS: If you can.

ED: An organization that has gotten a lot of attention, and I think rightly, is GiveWell. It is organizing to provide cash transfers to people in Kenya using mobile money. So they are really exploiting the existing mobile money to provide cash transfer with minimal screening and no monitoring whatsoever. They have done an evaluation of that work and they show that people seem to be spending the money perfectly reasonably. So I think it was a useful result and they got a lot of attention for it, rightly.

Not up and coming, but I am actually a big fan of the World Bank. I think that they have a lot of very good economists, they are trying hard. They are a bit disparate, they are doing this and they are doing that, but at the same time they have a lot of people that know what they are doing. By and large, in particular lately, they have supported innovation so that is nice.

Very self-servingly — but I should still cite them — I’m a big fan of IPA, that’s Innovations for Poverty Action. I’m saying that self-servingly because that’s of course our very close cousin. I think they are great, they are an NGO — which we are not — helping people conduct evaluations of their program. They are working in a lot of countries in the world setting up ambitious projects. That would be my three.

I’d also cite Pratham, which is a massive education NGO in India. When I said in education we try to understand what should be done, even if there are barriers to actually do it, I think Pratham is the one who figured out how to do it. If someone can do it, they can do it.
Esther Duflo

HA: Do you have any new ideas or experiments that keep you up at night? That you think will really help innovate, like you’ve been saying, in developing countries? What’s the next step you want to dive into?

ED: I have a two year old and a four year old, and they are the ones who keep me up at night, nothing else. [Laughs all around] I try to not be bothered by other things. There are two things that interest me: one thing is very abstract, one thing is very concrete.

One thing is so concrete it’s not economics anymore, it’s really more cognitive psychology. In fact I’m working with cognitive psychologists; I’m very interested in small kids — that might be related to my having a two year old and a four year old — I’m very interested in how small kids learn mathematics. And the reason why I’m very interested in this question is because… a central problem of education in developing countries is that poor kids arrive in school with a small delay, just because they have not gone to preschool, or have not gone to a good preschool.

But then the system in developing countries, partly because of colonial history, partly because of insistence in elite bias… it is the total opposite of “no child left behind”. It is many, many children left behind.
Esther Duflo

The teacher focuses on the top of the class and doesn’t pay attention to the children who are lagging behind. So a small lagging behind at the beginning turns into not being able to read at the end of primary school and exiting the school system.

My hope is to really harness the best of science –that’s why I went to see the psychologists and said you’ve got to work on some real problems, not just labs– to harness the best of what they know to construct the best curriculum possible for preschool. Then haul it out everywhere such that poor kids arrive with a slight leg-up compared to the richer kids, instead of a slight delay. Therefore this advantage will accumulate over time, that’s kind of my hope. So that’s one thing that I’m very, very interested in. And again, that doesn’t keep me up at night — nothing does — but it would.

On the other end of the spectrum, I’m very interested in the plumbing of public policy. That’s the one thing that might seem too abstract, literally how the government machine works. So, when I talk about plumbing, it could really be the plumbing of how money travels from point A to point B without leaking everywhere in the system. Suppose I come up with some great ideas, either they can be profitable, so market entity is going to take care of it and that’s fine, or they are not but we still want to do it because they have some social value. Then government is going to have to run it. Then the issue is, how is government going to be able to run it without destroying it in the process or losing all the money in the process, et cetera. The issue is, “Can I help government implement what they want to implement anyway?” As opposed to giving them ideas — you should do this, you should do that — how do you help government implement what they want to do anyways. Starting with fund flows, so I have a project on fund flows. Literally, how does the money go from the center to a local place and how does that affect corruption and stuff like that? And also, organizations of monitoring systems and the like. That might seem terribly unsexy but in the end the big ticket items will be there I think.

AS: One final question to wrap up, here at UCLA we also have an International Development Studies program. What advice would you give to young IDS students in pursuing a career in development?

ED: Once you finish your studies, you should find yourself a job in a developing country, if possible in the field somewhere and not in the capital. Spend a few years there and understand how things really work until you contemplate your next step. I think that would be the most important thing.

I think there are too many people who work in development that — I think there are bureaucrats in developing countries who just have absolutely no idea what it is. Get yourself out there.
Esther Duflo

AS: That’s the biggest problem that we’ve learned. There are all these organizations telling developing countries what to do when they’ve never set foot in the country.

ED: It’s not just that, it’s also bureaucrats sitting in Delhi, dreaming up some systems. Going back to the plumbing issue, I was talking about healthcare, saying the quality of healthcare is terrible. So one of the issues is the nurses in the public centers never show up to work. So you write the nurses are really bad people, but then you look at them and their job description, and its some kind of … so she’s supposed to arrive at the center at 8 o’clock and be there from 8 to 8 and do field visits in the meantime, she doesn’t have any vehicle, she has ten villages that she has to visit. It’s 50 degrees centigrade, she has to persuade people to get sterilized, which, of course, they don’t want to get sterilized. So someone has been sitting down saying what is the ideal job description for one of these nurses without thinking one thing about how hard it is. So the way we describe it in the book with Banerjee [Poor Economics] is the three I’s: policies for developing countries are plagued by ideology, ignorance, inertia. You have no idea of the realities in the field, and once that sort of thing is in place it never goes away.

May 3, 2016 0 comment

The International Economy

The Yuan in Recent Times

written by Pallabi Chakraborty

In all circles of economic discussions these days, there is one name that is mentioned again and again: China. As recently as 1978, China was one of the poorest nations in the world. Gross domestic product was only one-fortieth of that of the United States. Until 2015, China was one of the world’s fastest growing economy, on its way to being an economic superpower. China’s sudden, but not unexpected, downturn sent fears of an impending recession rippling throughout the world.

China’s economy has grown by leaps between 1978 and 2015, a period when GDP per capita had grown from $153 to $1284. This was also a period marked by a shift from traditional developing country industries such as clothing and footwear to the more technical and sophisticated manufacturing of automobiles, computers and phones. The burgeoning growth that followed can be safely attributed to relaxing regulations, encouraging entrepreneurship and opening up the economy to external forces. Things looked bright and rosy, almost perfect.

In 2015, for the first time in about twenty five years, China set an economic growth rate goal of 7%, the lowest in 25 years. This was a part of a host of reforms that the Chinese Premier, Li Keqiang, had announced in March of the same year. Other reforms included pushing for a more consumer spending and trade oriented growth plan, thus moving away from what was by and large a credit fuelled growth formerly. Trade figures around July last year implied that hitting the growth rate of 7% would also prove to be difficult, thus increasing the pressure on the Chinese government to revise their reform plans. This was surprising but not entirely unexpected. The Law of Large Numbers clearly suggests that the growth of an economy has to slow down at some point. Maintaining the past year’s growth rate would suggest that China would have continued to grow at a 10% rate this year, that is a 10% growth on a base which was greater than 10% growth on the previous year. The economy eventually starts to slow down so that growth rates are more consistent with the historical average growth rate of the economy.

Apart from a slowing economy, China is also currently riddled with a debt problem. When the United States, and as a ripple effect a lot of other nations, were grappling with the 2008 recession or its effects, China devised a different way to stay afloat. A lot of money was pumped into the economy in the form of stimulus packages, mainly geared towards real estate and infrastructure development. An outcome of this was that private sector debt started to grow faster than the economy. Outstanding loans became 207% of the GDP by June 2015. The central bank decided to clamp down on interest rates policies to impede borrowing. After years of having such easy access to easy borrowing, it is difficult for the nation to unlearn old habits. As expected, banks and other lending institutions found several other ways to keep lending. It is safe to say that borrowing did not come to a grinding halt and hence debt kept piling up. For reference, China’s debt was 158% of the GDP in 2007 and by the middle of 2014, it was 282% of the GDP. Lending was so rampant that it was a tough task to keep track of all the non-performing loans, which are naturally a big drain on the economy.

In order to help the economy get back on its feet, China cut down interest rates. Reserve requirements of banks were eased as well. Another change was the yuan being devalued. For most of its history, the currency has been pegged to the US dollar. After China started to open its economy in the 1980s to encourage Chinese exports, the currency was devalued as a supporting strategy. As late as 2015, the Chinese Central Bank devalued the yuan again, to give exporters and the country a competitive edge in an attempt to foster exports and assist an economy that is witnessing its slowest growth rate in a long time. This was also an effort to let the currency be a function of market forces. As discussed above, curbing interest rates and providing fiscal stimulus had not been enough to tackle the slowdown; devaluation was another attempt at it. On the other hand, China had been planning its policies for a while, bearing in mind the government’s intention of making the yuan a part of the IMF’s Special Drawing Rights basket of reserve currencies. Typically the IMF re-evaluates its SDR basket every five years. The yuan had been rejected in the past but succeeded this year on the condition that the currency would be allowed to take on a “freely floating exchange rate.”

When a professor of mine predicted the slowing down of the Chinese economy in a class a couple of quarters back, we all laughed a little, only because it seemed so unbelievable. That same summer, the newspaper was full of this news. It seemed like a practical demonstration of all the concepts discussed in that class. In this era of globalization, it is very difficult for any economic entity to be detached from others. Understandably, fears of a global recession gripped the collective consciousness of the world. As discussed above, one of the main fallouts of the tremendous economic growth was a debt explosion. Horrors of the 2008 financial crisis still bear heavy on us, and a repeat of a similar situation because of bad loans seemed likely. When we look at what effects the slowdown could have on other nations, one of the things that first comes to mind is trade. China and the US have very strong ties. However, the good news is that American markets are primarily powered by consumer spending, which means that reduction in exports owing to lesser domestic spending in the Chinese market would not affect us as much.

A period of high economic growth is always followed by growth slowing down, often a way of the market correcting itself. This is just the low of the cycle. While its is unlikely that China will again hit dizzying growth rates in the near future, the reforms put in place by the Chinese government will ensure that China also develops a more consumer-oriented market approach, rely less heavily on exports, and open up the yuan to market forces thus making the economy more robust and growth sustainable.

February 20, 2016 0 comment

Cuban propaganda declaring "Ideas are and forever will be the most important weapon."

Featured Immigration Mexico and Latin America Security and Conflict Society and Culture The International Economy

Ending the Embargo: Liberating US Politics from the Cuba Lobby

written by Kurt J. Klein

Cuban propaganda declaring “Ideas are and forever will be the most important weapon.”

On 14 December, 2014, President Obama announced he will re-establish diplomatic relations with Cuba after almost 54 years. A month later in the State of the Union, he called on Congress to end the embargo in 2015.

Since its beginnings in 1960, the embargo has done nothing to promote its stated goal of fostering democracy and human rights on the island. On the contrary, Cuba remains a one-party communist state that has been led by either Fidel or Raul Castro since 1959. In reality, the brothers use the embargo to successfully create a martyr identity; propping up their regime by giving them a boogeyman on whom they can blame the country’s economic woes. Furthermore, it serves as a derisive obstacle to US cooperation with Latin America. Economically, it costs US exporters at least $1.2 billion per year. Even stalwart allies, with the exception of Israel, leave the US isolated on this issue by renouncing the embargo. Since 1999, more Americans have favored ending the embargo than oppose ending it. So what’s the fuss? Why has it taken so long to abandon an anachronistic cold-war remnant that is not just ineffective, but deleterious to American interests?

Over the last 40 years, the “Cuba Lobby,” interest groups that support the embargo and other hardline policies towards Cuba under Castro, has wielded an unrivaled level of influence in Washington; indeed, analysts like American University’s William M. Leogrande have deemed it more powerful than even the NRA. The Cuban American National Foundation (CANF) and the U.S.-Cuba Democracy PAC have a long history of wooing congressional candidates with campaign contributions and punishing those who would renounce the embargo. Similarly, this power reaches even to the State Department. Notably, congressmen under the influence of this cartel are known to manipulate the agency’s funding for specific programs and deny appointments to career Foreign Service Officers who are not sufficiently hard on the Castro government. Furthermore, in possibly the moment when their influence was most strongly felt, many election analysts believe that the traceable chain from Vice President Al Gore to the Clinton Administration’s actions during the Elian Gonzalez saga provoked the wrath of the CANF and the Cuban American exile vote during the 2000 election. Consequently, the lobby’s powerful presence in Florida helped swing the state, and correspondingly the presidency, to George W. Bush.

However, this is all changing. The first group of Cuban Americans who came to the US as political refugees after the Cuban Revolution are now well into their 80’s. It is this generation and their children, themselves aging and approaching retirement, who fervently loathe the Castros. These older Cuban Americans make up the leadership who push the Cuba Lobby to strongly support the embargo and other policies that isolate Cuba. On the other hand, the more recent Cuban immigrants came to the US for economic reasons. They do not possess the same acrimonious sentiments towards the Castros. They desire improved relations between the US and Cuba so they can visit and send remittances to their families without hindrance. As this younger generation replaces the older one, a window is now opening where a majority of Cuban Americans wish to see the embargo end. Currently, 52% of Cuban Americans in Miami-Dade County, the largest center of Cuban Americans, oppose continuing the embargo. The changing mood in the Cuban American community, and the fact that the President sees it as politically safe to normalize relations with Cuba, are evidence that the Cuba Lobby’s power is beginning to fade.

Even with the change in general attitude that is spurred by shifting demographics, it is unlikely that we will see any changes toward the embargo in the near future. As a matter of fact, both Houses of Congress are in the hands of Republicans. If Congressional Republicans fall in line as expected with current leadership, Speaker John Boehner and Senator Mitch McConnell, the necessary congressional support needed to repeal the embargo will be hard to come by. Under the current hyper-partisan climate in Congress, supporting policies that are promoted by the President are often seen as traitorous to the Republican cause. With that stated, there are some GOP supporters in Congress such as Senators Jeff Flake and Rand Paul who desire a change in policy. However, for the time being, the Cuba Lobby still retains its hold on the legislative branch. Perhaps future Congresses can end the embargo by bringing either a change in party control, or, if enough Republicans find political incentives to oppose the Cuba Lobby.

The embargo is very likely to become a hot foreign policy issue in the next Presidential election. The Democratic frontrunners support continuing President Obama’s initial steps. However, with the notable exception of Rand Paul, nearly all the Republican hopefuls oppose the president’s efforts to normalize relations with the island.

It is ironic that while the Cuba Lobby has been able to exploit Florida’s disproportionate political importance for its own cause, those wishing to end the embargo are looking to do it through another US electoral power oddity: Iowa, the first state to begin the process to pick presidential nominations for both parties. The United States Agricultural Coalition for Cuba (USACC), an organization made up of many powerful agricultural interest groups, sees Cuba as a potential market for farm exports. They can count among their supporters current US Secretary of Agriculture and former Iowa Governor Tom Vilsack. USACC’s goal is to convince voters in Iowa’s caucuses of the potential benefits that ending the embargo would have on the local agricultural industry. It appears their argument is already being heard in Iowa as the State Senate recently approved a resolution supporting enhanced trade between the US and Cuba.

Perhaps the Iowa caucuses can convince those seeking the Republican nomination, and in turn provide evidence to Congressional lawmakers, that opposing the Cuba Lobby is a politically tenable position. The beginning of presidential nomination process will be a great barometer to how close the US is to ending the embargo.

Note: This article also appears in The Generation’s first print issue

October 12, 2015 0 comment

A political poster from a Buenos Aires street advocating "Enough Vultures! Argentina united in a national cause."

Featured Mexico and Latin America Security and Conflict South America The International Economy

Los Muertos no Pagan: The Case for New Institutions to Resolve Sovereign Debt Disputes

written by Kurt J. Klein

A political poster from a Buenos Aires street advocating “Enough Vultures! Argentina united in a national cause.”

In 1776, Adam Smith in The Wealth of Nations asserted: “When it becomes necessary for a state to declare itself bankrupt, in the same manner as when it becomes necessary for an individual to do so, a fair, open and avowed bankruptcy is always the measure which is both least dishonorable to the debtor, and least hurtful to the creditor.” Yet, 238 years later, international financial institutions still fail to answer Smith’s call. Recent turmoil in financial markets has brought both advanced economies such as Spain, and developing nations like Argentina, dangerously close to default. The global threat by destabilized markets makes it imperative that the State of New York, the federal government, and international bodies, such as the International Monetary Fund (IMF), create new mechanisms to resolve the unique cases of sovereign debt defaults. Just as bankruptcy laws and courts are used domestically to resolve debt repayment conflicts, a similar framework needs to be created to handle sovereign debt disputes. This system needs to be focused on producing economic growth in the interest of both creditors and debtors. This idea is not new: Anne Krueger, while in the office of First Deputy Managing Director of the IMF, proposed a Sovereign Debt Restructuring Mechanism (SDRM) in 2002. The proposal was vetoed by the George W. Bush administration. Now it is time to raise the issue again, as the absence of an adequate forum to handle these disputes is apparent in the ramifications of recent US court rulings against the Republic of Argentina.

In Republic of Argentina v. NML Capital, the Supreme Court upheld a ruling by Thomas Griesa, Federal Chief Judge for the Southern District of New York, stating that Argentina must pay the full value of $1.33 billion in bonds that are possessed by NML Capital before paying its obligations on other bonds. NML Capital is a hedge fund that owns Argentine bonds that were not exchanged during the country’s attempts in 2005 and 2010 to restructure debt after its 2001 default. As a result of the ruling, the nation fears that it could be liable for $15 billion when it is applied to all holdouts. This $15 billion albatross would be equal to roughly half of Argentina’s central-bank reserves. Yet the most important aspect of the ruling is Griesa’s understanding of the bonds’ pari passu clause. His interpretation prescribes that Argentina cannot make payments to the exchange bondholders until it comes to an agreement with NML Capital regarding its holdout bonds. When no agreement was reached and the Republic’s payment to exchange bondholders was blocked, Standard & Poor’s declared Argentina in default on July 30.

Argentina will not be the only party to endure the negative consequences of this ruling: the future of all sovereign debt restructuring is in jeopardy. Under Griesa’s interpretation of pari passu, bondholders will have no incentive to accept a debt swap after a default. Furthermore, even one bondholder who holds out can nullify an entire debt restructure and force the debtor back into default. As a result, countries with troubled economies become bigger prey for “vulture funds”: a pejorative term used to describe hedge funds such as NML Capital who buy up distressed bonds at fractions of their initial prices with the intent to litigate to be paid the bonds’ full nominal value. The ruling sets a precedent that would prevent nations from restructuring their debt, making good with creditors, and rebuilding after a default.

On the international level, Bolivia, with the support of the G77+China and alerted by Argentina’s tribulations, proposed a multilateral legal framework for sovereign debt restructuring processes at the UN General Assembly. On September 9, the assembly overwhelmingly adopted the measure with 124 votes in favor, 11 votes against and 41 abstentions. The US was among the 11 nations that voted against the resolution. The proposal is short on specifics but it includes an element that would bind all creditors to a restructuring agreement if a majority accept. It is improbable that the US would yield jurisdiction on local contracts to a global institution. Thus this hypothetical framework would have little power over existing bonds issued in New York markets. However, this is a clear call by the developing nations who are most likely to issue bonds in foreign markets such as New York that such mechanisms are badly needed.

Understandably, if US law is more concerned about protecting creditors than permitting nations with a troubled past a chance to start over, sovereigns will reconsider issuing bonds in New York or other capital markets in the US. This has the potential for New York to lose its place as an international financial center in regards to issuing sovereign debt. On July 15, with the Argentine President in attendance as a special guest, the heads of state from Brazil, Russia, India, China and South Africa inaugurated the $100 billion New Development Bank (NDB) at the sixth BRICS summit in Fortaleza, Brazil. These nations hope that the NDB will serve as an alternative to the western dominated IMF and World Bank. The BRICS’ NBD will be an alluring alternative to US financial markets for developing nations in the future.

If New York desires to preserve its place as an international financial center, new laws to preside over the unique cases of sovereign debt default need to be adopted. A sovereign is not a normal partner in a contract such as a person, business, or corporation. Hence, a special bankruptcy court for sovereign nations overseen by judges with advanced training in economics should be created by the State of New York or the federal government. A mechanism for negotiation, mediation and arbitration needs to be in place with a focus on restoring a nation’s economy so it has the ability to pay back its creditors. Among its many tools, it could swap debts for new bonds that pay according to macroeconomic statistics such as GDP growth similar to Argentina’s bond swap offers in 2005 and 2010.

But these measures can augment more than a developing country’s economic growth and New York’s standing as a hub of finance; they will promote global economic justice. Social utility is completely absent in the process where a cabal of hedge funds purchases distressed debt at a fraction of its titular value and subsequently litigates to be paid in full. A common counter argument is that Griesa’s and similar rulings are in line with what is in the bond contract. Thus, in order to observe rule of law, debtors must be held accountable. The fact that the legal process supports this practice is the very reason it needs to be reformed. The consequences aren’t beared by the corrupt politicians who wantonly accepted too much in loans and ensuingly misspent them in order to maintain political power. They fall on a country’s citizens who pay for both the creditor’s and debtor’s avarice in increased taxes, substandard public services, and stagnant economic growth.

The US’ foreign policy in regard to sovereign defaults must be reexamined and made coherent as well. With a large mandate from the aforementioned UN resolution, the world has asked the US to bring its actions in line with its commonly stated foreign policy goals of long term economic and social progress in the developing world. It should start by advocating and ratifying a SDRM at the IMF. The Anne Krueger proposed SDRM with collective action clauses from over a decade ago would be a great example to follow. This would set insolvent nations on a feasible path to grow while making good with all their creditors. The alternative is an eternal cycle of debt and default for nations with a dolorous economic past such as Argentina

”Los muertos no pagan las deudas” – ”The dead don’t pay their debts” is a phrase from late President Nestor Kirchner’s 2003 speech to the UN General assembly. Frequently, the current president borrows her late husband’s proverb in speeches regarding the external debt and the holdouts.

November 28, 2014 3 comments

São Paulo’s 8th “Não Vai Ter Copa” World Cup Protest, May 24, 2014.
Photo by Ben Tavener

Mexico and Latin America Society and Culture South America The International Economy

Brazil’s World Cup, a Reflection of Flawed Priorities?

written by thegeneration

By Emily Milstein

International sporting events provide platforms for host countries to broadcast their national glory. With the world watching, a host nation can showcase its achievements and further dazzle audiences with its ability to successfully organize a massive undertaking. The world watched this story play out with the Olympics in Athens, Beijing, London, and Sochi, as well as the World Cup in South Africa recently.

As host of the 2014 World Cup which began in June, Brazil hoped to use the event to fulfill similar aspirations. Hosting the Cup can publicize Brazil’s progress and growth as a developing nation, worthy of hosting not only the 2014 World Cup, but also the 2016 Olympics in Rio de Janeiro. Furthermore, Brazil is considered by many to be the “spiritual home of soccer.” This gives the country’s role as host even greater significance to the nation’s population, many of whom are avid soccer fans.

However, global sporting events such as the World Cup require huge investments and a massive amount of capital from host countries. China spent approximately $40 billion to host the 2008 Summer Olympics, Russia spent an estimated $50 billion on the 2014 Winter Olympics, and South Africa spent $3.5 billion to host the World Cup in 2010. While FIFA, the international governing association of soccer, provides some of the capital needed for each tournament, host countries are responsible for providing money needed for projects like infrastructure improvements. These improvements often cost billions of dollars. Such expenditures can generate considerable popular resentment but host governments often justify these costs with claims that the event will bring economic benefits to the country. Brazil is no exception. The country’s leaders have claimed that hosting the tournament will bring economic prosperity to Brazil through increased tourism, job creation, and infrastructure development. In fact, at a cost of $11 billion the 2014 World Cup is set to be the most expensive World Cup ever held, even before expected overrun costs.

Brazilians from a variety of backgrounds have heaped criticism on the Brazilian government for spending so much money on a month-long sporting event in a country where many live in poverty. Brazil is a rapidly developing nation where, according to the World Bank, 15.9% of the population still lives in poverty. Social services such as education, healthcare, and housing remain woefully inadequate. Recent demonstrations in Brazil reflect these grievances, as teachers, bus drivers, police, and even bank workers have mounted protests and strikes against poor working conditions and inadequate wages.

The discontent throughout Brazil in the lead up to the World Cup reflects questions that need to be asked, questions that have come up time and time again as countries continue to spend outrageous amounts on such events. Can a country justify spending huge amounts of money on a sports tournament while many of its people live in poverty? Shouldn’t the $11 billion spent by Brazil to host the Cup be used instead to improve necessary services such as healthcare? Lastly, are the potential benefits worth the immense financial costs that come from hosting large sports events, such as the World Cup or the Olympics?

Ultimately, the benefits promised by organizers of global sports tournaments often fail to materialize. Sydney for instance, did not experience the transformation and increase in tourism promised by its leaders after the city hosted the 2000 Olympics. The 2002 World Cup in Japan brought minimal benefit to the downtrodden Japanese economy. After the 2010 World Cup in South Africa, the country struggled to recoup the $3 billion it invested in hosting the tournament.

For Brazil, the costs of the World Cup will most likely exceed any benefits the country may gain from hosting the tournament, especially given the fact that the corruptionthat has long haunted the country has infiltrated even its preparation for the Cup. For instance, building contracts for World Cup projects have been awarded to friends and cronies of politicians. Given such corruption, any of the economic benefits generated by thegames will benefit already wealthy Brazilians. An auditor’s report assessed the cost of the ready-made grandstands in Brasilia’s stadium at $4,700. The construction firm that installed the stands however charged the government $1.5 million. That price increase amounted to a 31,000% mark-up of the grandstand fees. Such instances of corruption siphon public funds into the hands of construction magnates and away from other possible uses, such as education.

Furthermore, while Brazil will earn revenue from the Cup, FIFA will also pocket a significant portion of Cup revenues by pursuing tax exemptions and through licensing and advertising. Unfortunately, this means that most Brazilians will accrue few benefits and have limited access to World Cup profits, as such earnings remain concentrated in the hands of Brazil’s elite and FIFA. FIFA has attracted significant condemnation in the international news media about its pocketing much of the revenues generated by the Cup. Hopefully, such criticism will push the organization to rethink its business model. FIFA and Brazil’s leaders ought to take steps to ensure that at least some portion of the Cup’s profits are spent on necessary projects such as improving poor Brazilians’ access to high quality education or healthcare.

Questions about excessive spending for sports tournaments apply not just in the context of Brazil, but to the world at large. The practice of spending huge amounts of money on sporting events is wasteful because that money could be invested in essential programs or services. All countries have people who live in poverty and who would benefit from improved social services and increased investment in areas like healthcare and education. Nonetheless, the drive to host events like the World Cup is strong in many countries because playing host on a world stage allows them to showcase their ability to plan and organize an event on such a large scale. This is particularly important for recently industrializing nations like China or Brazil who want to showcase their nations’ advancing development programs in order to raise their national profile and attract business investors. Nations that host large sporting events do experience these tangible benefits, however the costs of these endeavorsoutweigh their benefits. This is especially true given the short term nature of some of the primary gains, including job creation and tourism, which end with the closing of any tournament.

Given the lack of long-term financial benefits that comes from hosting large sporting events, the international community needs to reconsider the grand expenditures that go into such tournaments. Citizens and their governments need to re-assess their priorities and come to the realization that rather than investing money in sports, nations should increase spending on issues like fighting the effects of climate change and social services. Brazil’s World Cup and the protests experienced in the weeks leading up to the tournament highlight these problems, revealing the flawed priorities at play, as the country spends billions on sports while many Brazilians live in poverty. Far too often, people question sports spending during tournaments and then promptly forget the issue at the close of the event. Let this summer be a moment for the world as a whole to reevaluate and redirect its priorities regarding the exorbitant spending on global sports tournaments. Rather than forgetting these issues after the World Cup, we need to continue to raise questions about spending in order to ensure excessive spending practices do not continue in the future.

July 3, 2014 4 comments

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