Philippa Kaur

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    in World Politics

    Slaves Picked Cotton, Senator Cotton Picks a Fight with History

    History has always been one of the biggest sources of embarrassment for the United States. The liberated colonists left European history behind when they declared independence. Americans ever since have demonstrated an obsessive focus on the present and the future, believing the past is irrelevant. American culture treats history as a largely forgettable litany of loosely related events, the best of which serve to prove that the entire “course of human events” (Thomas Jefferson) has served a divinely ordained purpose: to elevate to dominance “the greatest country in the history of the world” (Senator Rick Scott), consolidating its power and affirming its global leadership.

    In the midst of the Civil War, President Abraham Lincoln resorted to some rhetorical trickery to get his audience in Gettysburg to think about the history of the nation’s founding. He caught the public’s attention by proposing an exercise in mental calculation, testing their skills at math while invoking historical facts. Challenged to make sense of the circumlocution “four score and seven years ago,” his listeners had to multiply 20 (one score) by four and add seven to arrive at the sum of 87, and then count backward to arrive at 1776, the year of Jefferson’s Declaration of Independence.

    The success of Lincoln’s Gettysburg Address now stands as just one more isolated fact in the timeline of history. It should be remembered not only as a moment of inspired political thought and patriotic expression, but also for its clever rhetorical ploy to focus the audience’s attention on history. 

    Today’s creative teachers might do well to follow Lincoln’s example. With the right rhetoric they could encourage their students to think things out instead of simply subjecting them to boring lectures that present history as a sequence of anecdotes largely devoid of context and meaning. Of course, today’s teachers are no longer in a position to teach due to the coronavirus. And even if they could, they would be expected to focus on STEM (science, technology, engineering and math) instead of history.

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    This year’s lockdown caused by COVID-19 has given Americans more time to think. The ongoing protests against police brutality and racial inequality have forced a renewed discussion about the nation’s founding and its historical logic. In 2019, The New York Times promoted a project aimed at understanding the crucial role slavery played in building the colonial economy and structuring the nation that emerged from it in the late 18th century. Called The 1619 Project, it focused on the annoying fact that the first permanent settlements in Virginia, a year before the arrival of the Pilgrims in New England, inaugurated the practice of importing African slaves.

    Senator Tom Cotton of Arkansas was sufficiently annoyed to propose a law that would ban the results of the project from being taught in schools. He explained: “We have to study the history of slavery and its role and impact on the development of our country because otherwise we can’t understand our country. As the founding fathers said, it was the necessary evil upon which the union was built, but the union was built in a way, as Lincoln said, to put slavery on the course to its ultimate extinction.”

    Here is today’s 3D definition:

    Necessary:

    1. Required by the logic of events to attain a certain goal.

    2. When applied to the history of the United States, ordained by Providence in its plan to elevate American capitalism to the status of paragon of both political and economic organization.

    Contextual Note

    Realizing that the idea of a “necessary evil” sounded like an excuse for racism, Cotton “claimed he was citing the views of America’s founding fathers, rather than his own.” Some might interpret that as aggravating the offense, since it calls into question the judgment of the founders, generally considered by Republicans to be secular saints called upon by the divinity to establish the most perfect nation on earth. If the founders thought slavery was both evil and necessary, this either brands them as hypocrites or flawed political thinkers.

    The historians who have commented on Cotton’s assertion that slavery was a necessary evil have pointed out that there is no instance of any of the founders taking and defending this position. Pressed to reveal his own views, Cotton distanced himself from the cynical founders: “Of course slavery is an evil institution in all its forms, at all times in America’s past, or around the world today.”

    When pressed further by Brian Kilmeade on Fox News, Cotton offered this explanation: “What I said is that many founders believed that only with the Union and the Constitution could we put slavery on the path to its ultimate extinction. That’s exactly what Lincoln said.” There is of course no evidence that “many founders” believed that the mission embodied in the Constitution was to phase out slavery. Furthermore, Lincoln never said “exactly” any such thing.

    Embed from Getty Images

    Cotton believes history should not be thought of in terms of acts and deeds or the nature of institutions and their workings, but simply remembered for its stated ideals. Here is how he frames it: “But the fundamental moral principle of America is right there in the Declaration [of Independence.] ‘All men are created equal.’ And the history of America is the long and sometimes difficult struggle to live up to that principle. That’s a history we ought to be proud of.”

    Does he really think that learning about the reality of slavery and its role in building the nation’s economy will prevent students from being proud of their country? Cotton seems to believe that studying the documented facts about the nation’s past rather than simply admiring the edifying text of a slaveholder who claimed to believe in equality is a form of perverse revisionism. 

    The question being asked today by vast swaths of the US population — and not only those protesting in the streets — concerns precisely the point Cotton mentions: the “difficult struggle to live up to that principle.” He seems to believe that the struggle ended long ago and merits no further consideration. Mission accomplished. But if he were sincere, he would highlight the fact that if we want to live up to the principle, we should examine the facts rather than simply parrot the principle.

    Historical Note

    Cotton was specific in his complaint about The 1619 Project. He called it “a racially divisive, revisionist account of history that denies the noble principles of freedom and equality on which our nation was founded. Not a single cent of federal funding should go to indoctrinate young Americans with this left-wing garbage.” Though it would be difficult to find any logical structure to this assertion, Cotton implies that denying “the noble principles of freedom and equality” is what makes the project “racially divisive.” 

    Acknowledging the fact that the principles of freedom and equality he vaunts cannot apply to slavery does not amount to denying the principles. On the contrary, it asserts their importance by signaling the historical contradictions that not only should have been taken into account in 1789 (when the Constitution was ratified), but also in 1865 (at the end of the Civil War), as well as in 1964 (when the Civil Rights Act was passed) and in 2020, when the whole question has emerged again after the brutal death of George Floyd in Minneapolis.

    The real problem lies in the idea of a “necessary evil.” How does Cotton justify the concept? One might argue that Officer Chauvin’s killing of George Floyd was the evil that was necessary to provoke today’s protests. And the protests may have the effect of changing things to make the nation less racist than it was before. But an evil act by an individual cannot be compared with an institution, an economy and a way of life, which is what slavery was.

    To call something necessary means it is required for some purpose. What is that purpose? Senator Cotton seems to suggest it was the abolition of slavery. And in purely logical terms, he’s right. Slavery couldn’t be abolished if it didn’t exist. Long live the great institutions of the past, especially the ones that foresaw their own abolition.

    *[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news. Click here to read more of The Daily Devil’s Dictionary.]

    The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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    Morocco Looks to a Future After COVID-19

    Many countries are facing declining growth rates due to the coronavirus pandemic, and Morocco is no exception. Given lockdowns and flight restrictions implemented worldwide from March, the tourism and hospitality sectors — usually the third-largest component of GDP — have suffered enormous losses and almost collapsed during the first 90 days of the global response to COVID-19, the disease caused by the novel coronavirus.

    In the latest World Bank report, “Morocco Economic Monitor,” it is projected that the Moroccan economy will contract in the next year, which would be the first severe recession since 1995. “Over the past two decades, Morocco has achieved significant social and economic progress due to the large public investments, structural reforms, along with measures to ensure macroeconomic stability,” the report notes.

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    The World Bank’s forecast indicates that Morocco’s real GDP is projected to contract by 4% in 2020, which is a sharp swing from the 3.6% positive growth rate that was predicted before the pandemic. Consequently, the bank expects Morocco’s fiscal deficit to widen to 7.5% of GDP in 2020, around 4% more than expected before the COVID-19 outbreak.

    Meanwhile, the country’s public and external debt is to set rise but still remains manageable. In assessing the government’s well-regarded response to the crisis, the World Bank puts an emphasis on moving from mitigation to adaptation, which is key “to ensuring a resilient, inclusive, and growing Moroccan economy.” It also points out that despite this year’s setbacks, Morocco can still “build a more sustainable and resilient economy by developing a strategy to adapt,” similar to what it has done to address issues of climate change and environmental challenges.

    A Strong Position

    When viewed in comparison to the rest of North Africa and the Middle East, let alone its sub-Saharan neighbors, Morocco is in a strong position to capitalize on global changes as companies rethink supply chains and vulnerabilities in logistics. Globally, and especially in Europe and the US, corporations are rethinking their reliance on China as a key supplier, and Morocco is poised to benefit, as I mentioned in a previous article on Fair Observer.

    The European Union, in particular, is already calling for “strategic autonomy” in sectors such as pharmaceuticals by focusing on more reliable and diversified supply chains. The new strategy is expected to entail tighter rules on human rights and environmental protection on imported goods, a move that experts say would boost local manufacturers, and Morocco is near the top of the list.

    Guillaume Van Der Loo, a researcher at the Center for European Policy Studies in Brussels, spoke to DW about the opportunities for Morocco. “If you look at Morocco, there are more favorable conditions there for specific areas in particular, in relation to renewable energy and environmental related sectors, [and] Morocco is quite a frontrunner and the EU tries to chip in on that,” he said. “The idea that the European Commission has already expressed about diversifying supply chains could be beneficial for Morocco and that could accelerate negotiations on the new trade agreement.”

    Morocco is one of few countries that have free-trade deals with both the United States and the European Union, and it is seen as an entry point for Western investment in Africa. As Alessandro Nicita, an economist at UN Conference on Trade and Development (UNCTAD), says, “Morocco is very well positioned because of its proximity [and] because it’s part of [the] EU’s regional trade agreements, its rules of origin are kind of integrated with those of the EU.”

    The Challenges

    Yet Morocco faces challenges in grabbing these economic opportunities, including restrictive capital controls and a paucity of high-skilled workers. Having been overhauled in the 1980s, the country’s education system “has failed to raise skill levels among the country’s youth, making them especially unsuitable for middle management roles,” DW reports.

    Another concern has been raised by the National Competitive Council in Morocco, which said that if the country was to move forward efficiently, it had to end monopolies in key sectors. These include fuel distribution, telecoms, banks, insurance companies and cement producers, which have created an oligopolistic situation in the country.

    The Oxford Business Group (OBG) has also released a study focusing on the success that Morocco is achieving in terms of combating the effects of COVID-19. “Morocco boasts a robust and diversified industrial base, developed through years of heavy investment, which enabled the country to take actions to control the pandemic and mitigate supply chain disruptions,” the OBG notes. The investment-friendly climate and robust infrastructure, with Africa’s fastest train network, will enhance the country’s attraction for manufacturers looking to relocate Asia-based production, as supply-chain disruptions due to distant and vulnerable suppliers have resulted in many companies pursuing a strategy of near-shoring, the report adds.

    So, Morocco’s future in manufacturing, agro-business and technology may well determine the country’s capacity to recover its positive GDP growth rate as it overcomes the COVID-19-induced recession. To do so, it will need a robust marketing campaign as a country for reliable and relatively inexpensive supply chains and a skilled workforce.

    *[An earlier version of this article was published by Morocco on the Move.]

    The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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    A Master Class in Linguistic Suppression

    Boston’s local National Public Radio news station, WBUR, recently interviewed Rutgers University linguist Kristen Syrett, an advocate for pushing the sacred cause of political correctness beyond its currently accepted boundaries. Presumably in the name of racial justice, Syrett wants to root out every conscious or unconscious reference in the English language to the institution of slavery.

    Because plantation slave owners were referred to by slaves as “master,” or “massa” in the black vernacular pronunciation, Syrett believes the expression “master bedroom” should be expunged from the language of real estate. In the program, she and the interviewer, Robin Young, approve of the initiative to change the name of the Augusta Masters golf tournament, doubly culpable because in the past its caddies “had to be black.” It may seem odd that she has nothing to say about chess masters and grandmasters. This oversight seems even odder because chess is a game that pits a black army against a white one, which always has the first move.

    Syrett explains why the master bedroom must disappear: “There are people who are part of our population who do associate that practice and that history with that word.” And therein lies the problem because “there are times when language can express implicit bias.”

    Here is today’s 3D definition:

    Implicit bias:

    1. In contrast with explicit bias, the attribution to another person, by people with a superior moral standing, of an unjustifiable idea, belief or value that merits being condemned even if the accused person does not entertain that idea or belief.

    2. A supposed reprehensible mental habit of ordinary people that is discernible only to a class of people skilled at reading meaning that is not there into everyday language.

    Contextual Note

    What Syrett may not realize in her puritanical Bostonian zeal is that the enemy she’s tilting against isn’t racism — it’s the English language. She is calling into question the legitimacy of metaphor. Impoverishing the language does nothing to combat racism and may even have the effect of sheltering it from criticism. Racism is a worldview, not a vocabulary list.

    Syrett and Young appear intent on identifying, listing and banishing from polite discourse any words that might be associated with the slave economy. As she works in the field of children’s language acquisition, she appears to propose establishing a list of words teachers will be instructed never to use in classrooms to protect students’ ears from their vile influence.

    Some may suspect that these language detectives are primarily motivated by the personal pleasure gleaned from occupying the high moral ground that empowers them to designate unconscious racists for public opprobrium. Isn’t that part of the great Puritan tradition of New England to find ways of feeling more virtuous than the unwashed masses?

    For all her apparent schooling in the fashion of “critical theory,” Syrett’s critical thinking often relies on specious reasoning. Here is how she justifies the need to ban words: “To the extent that language can be a way of expressing who we are and what our values are and to the extent to which that language can either be a way to exclude people from a discourse or include them as key participants, then this is a great opportunity for us to revisit.”

    On several occasions in the interview, Syrett builds her reasoning around the phrase “to the extent that,” an expression that introduces a speculative and indeterminate idea. By concatenating two unrelated speculations, she creates the rhetorical illusion of equivalence or even of cause and effect. In this case it allows her to reveal an “opportunity.” But she hasn’t justified either proposition and even less the relationship (non-existent) between them. The opportunity this chopped logic permits is simply the censure she seeks to impose on the language ordinary people use.

    At another point, she says: “I think in a lot of cases, people aren’t really thinking that the expression conveys that kind of racism or misogyny.” Her point is clear: She thinks, whereas other “people” don’t think. With a more scientific approach, she might seek to explore why people don’t think what she thinks rather than supposing that they aren’t thinking. She may be right about their ignorance, but it may also emerge that she has misconstrued their and the language’s reality.

    Undoubtedly, Syrett starts with a noble intention. She wants to protect the victims of a truly oppressive system, even when the victims may not realize they are being oppressed. She believes language can be more secure by hiding reality. It must rid itself of anything that might, in her words, “marginalize and hurt other people.” The best way to do that is to scold those who fail to conform to the findings of her science.

    Historical Note

    Syrett’s approach is a perfect example of the decades-long trend in academe of the phenomenon known as critical theory. The first half of the 20th century produced a vibrant intellectual current called structuralism. It originated in the field of linguistics (Ferdinand de Saussure) and anthropology (Claude Lévy-Strauss) and offered insight into how societies and the cultures they produced were structured as complex interdependent systems. 

    In the mid-20th century, a disparate group of French linguists, philosophers, psychoanalysts and literary critics influenced by structuralism set about “deconstructing” the relationships between ideas, practices, language and modes of thought, from penal systems and sexuality (Michel Foucault) to popular entertainment and advertising (Roland Barthes). The chief deconstructionist, Jacques Derrida, denied the fundamental stability of meaning itself, which could only be a function of context. The ongoing dialogue of these thinkers, all of whom wrote in French, contains subtle and complex reflection on how human knowledge is created, managed and transmitted. 

    Alas, when this body of discourse crossed the Atlantic Ocean in the 1960s and 1970s, it lost something in translation. A strange mutation took place as academics labelled it “critical theory.” It appealed to humanities departments in the US who felt the need to show their concern with social issues. Because thinkers such as Michel Foucault offered insight into how cultural artifacts could reflect and support dominant worldviews and ideologies, American academics neglected its focus on the structural complexity of cultural and political ecosystems and instead seized on it as of method of assigning criminal intent to those who exercised power and oppressed minorities. 

    From the French post-structuralist perspective, this hijacking of the intellectual toolbox contributed little to our understanding of the societies past and present but served to reveal systemic features of US society and culture. If the French took delight in detecting the complex play of influences within a cultural system, American academics turned the method into a polarizing game of blame and victimization. Where the French thinkers saw intricate resonances that supported morally ambiguous social and political hierarchies, American academics saw arbitrary acts of personal abuse.

    Embed from Getty Images

    A French structuralist or post-structuralist observing this historical trend among intellectuals today might remark on the continuity in American society between the early Puritans’ insistence on dividing the world into the just and the unjust — those predestined by God to be among the virtuous and those condemned to sin. This cultural trend underlies the current obsession with separating society into two groups: innocent victims (any specific minority group) and evil oppressors. An aggressive system of identity politics has become the dominant ideology of the mainstream Democratic Party. It opposes the equally aggressive Republican insistence on defending “the shining city on the hill,” essentially a metaphor for white privilege.

    The rise of puritanical linguistic despotism can be traced back to World War I when sauerkraut was renamed “liberty cabbage” to protect American ears from German words. The tradition was perpetuated and even aggravated after George W. Bush’s invasion of Iraq when the White House punished Jacques Chirac’s disloyal France by renaming French fries “freedom fries.” 

    If liberty cabbage had some legitimacy because it was meant to spare people using a word from the enemy’s language, Bush’s initiative went further. France, after all, was not the enemy, except in the sense implied by Bush when he asserted in September 2001 that “Every nation, in every region, now has a decision to make. Either you are with us, or you are with the terrorists.” When France refused to line up behind his government in what President Chirac correctly deemed a deceitful and murderous enterprise, Bush undoubtedly saw France as an ally of the terrorists.

    That helps to situate the common thread between Syrett’s assault on “master bedrooms” and US foreign policy. It’s all about identifying, shaming and, when possible, banishing the culprit.

    *[In the age of Oscar Wilde and Mark Twain, another American wit, the journalist Ambrose Bierce, produced a series of satirical definitions of commonly used terms, throwing light on their hidden meanings in real discourse. Bierce eventually collected and published them as a book, The Devil’s Dictionary, in 1911. We have shamelessly appropriated his title in the interest of continuing his wholesome pedagogical effort to enlighten generations of readers of the news. Click here to read more of The Daily Devil’s Dictionary.]

    The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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    Young Men, Alienation and Violence in the Digital Age

    As the world was forced into lockdown at the start of the COVID-19 pandemic, Alex Lee Moyer’s documentary “TFW No GF” was released online. The film focuses on an internet subculture of predominately young, white men who already experienced much of life from the comfort of their own homes, pandemic notwithstanding.

    Its title, a reference to the 4chan-originated phrase “that feel when no girlfriend,” reveals the essence of its subjects’ grievances described in the South by Southwest (SXSW) film festival program as first a “lack of romantic companionship,” then evolving to “a greater state of existence defined by isolation, rejection and alienation.” As one of the film’s subjects remarks early on: “Everyone my age kinda just grows up on the internet … 4chan was the only place that seemed real… I realized there were other people going through the same shit.”

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    What does this level of alienation tell us about society today? And how seriously should we take the content found on this online patchwork of messaging boards and forums, each with its own language and visual culture that may at first seem humorous or ironic, but often disguises misogyny, racism and violence? These are difficult and urgent questions, particularly given the emergent incel phenomenon — “incel” being a portmanteau of “involuntary celibate” — which appears to be gaining in strength online.

    Virtual Expressions

    The idea of virtual expressions of alienation and rage translating to actual violence remains a real and present danger, as we were reminded of this May when a teenager became the first Canadian to be charged with incel-inspired terrorism. The documentary, however, avoids confronting the violence that this subculture often glorifies, and the director has since stated that the film was never supposed to be about incels but that it had become impossible to discuss it without the term coming up.

    As it turns out, the men we meet in “TFW No GF” appear to be largely harmless — except perhaps to themselves — and despite the documentary’s lack of narrative voice, it takes a patently empathetic stance. Set against the backdrop of industrial landscapes and empty deserts, this is a United States in decline. Here, role models and opportunities lie thin on the ground, and the closest thing to “community” exists in virtual realms. Each self-described NEET — slang for “not in education, employment or training” — has his own tale of alienation: of alcoholic parents, dead friends or a disenfranchisement with the school system.

    Embed from Getty Images

    For those who study internet subcultures, the memes of Pepe the Frog and Wojak explored in the film will be familiar. Pepe is used as a reaction image, typically in the guises of “feels good man,” and “smug/angry/sad Pepe” and, although not created to have racist connotations, is frequently used in bigoted contexts by the alt-right. Wojak, AKA “feels guy,” is typically depicted as a bald man with a depressed expression.

    One of the documentary’s subjects, “Kantbot,” explains that you “can’t have one without the other … that’s the duality of man.” For these men, Pepe represents the troll self, a public persona that embodies their smug and cocky traits. Wojak denotes a more private and vulnerable self, typified by inadequacy, unfulfillment and sadness. At its core, it is this dichotomy that the documentary seeks to explore, whilst at the same time demanding our sympathies.

    On the surface, the men in “TFW No GF” are united by their failure in finding female partners, a theme which permeates the “manosphere” that includes Men Going Their Own Way (MGTOW) and incels. This latter identity has garnered particular attention in recent years due to the spate of incel violence witnessed in North America, most infamously Eliot Rodger’s Isla Vista attacks in California in 2014 that left six people dead. According to Moonshot CVE, incels believe that “genetic factors influence their physical appearance and/or social abilities to the extent that they are unattractive to women,” with some subscribing to the philosophy of the “blackpill” — namely, that women are shallow and naturally select partners based upon looks, stifling the chances of unattractive men to find a partner and procreate.

    Incels are a diverse and nebulous community, their worldview characterized by a virulent brand of nihilism seen through the prism of a three-tiered social hierarchy dictated by looks. Here, incels find themselves at the bottom of the pile, after “normies,” “Chads” and “Stacys.” Whilst instances of real-world violence perpetrated by incels remain in relatively low in numbers, its potential to mutate into an offline phenomenon is rightly a cause for concern, with Bruce Hoffman et al., making a convincing argument for increased law enforcement scrutiny, noting that the most violent manifestations of this ideology pose a “new terrorism threat.”

    Strange and Hostile World

    A counterterrorism approach alone, however, is unlikely to address the reasons why so many young men (and women: see femcels) are drawn to these virtual worlds. If self-reported narratives on forums such as Incels.net and Incels.co are anything to go by, low self-esteem, bullying and mental health issues are rife. An acknowledgment of the pain, rejection and illness that someone may be suffering from is surely required, however unpalatable that is when faced with the abhorrent imagery and rhetoric that may espouse. Underlying all of this is the need for response based in public health.

    However, the documentary’s empathic approach has been criticized, with The Guardian accusing it of misinformation, particularly in its portrayal of 4chan and the like as harmless, and Rolling Stone criticizing the film’s acceptance of events without challenging the communities support of violence, misogyny and racism. In this sense, the film is reminiscent of the 2016 documentary “The Red Pill,” which followed Cassie Jay’s journey into the world of men’s rights activists, similarly focusing on one side of an ever-complicated debate. Thus, showing compassion should ultimately not be a way of avoiding the difficult conversations and, in the case of inceldom, a failure to do so could be seen as irresponsible.

    As a researcher of internet subcultures, documentaries like “TFW no GF” are valuable in so much as we are granted a rare perspective of these men in their own words. Despite the film’s selectivity and subjectivity — representing a small sample of the infinite experiences and beliefs held by those in this expansive community — it provides us with a vignette of the online spaces that allow for certain hateful ideas to flourish and be sustained.

    For some, the strange and often hostile world of online messaging boards provides a much-needed connection when other doors are closed. For others, they contribute to a more misogynistic, racist and at times violent way of perceiving the world. As COVID-19 continues to rage on, forcing more of us to shift our lives online, the ability to understand and combat deeply entrenched loneliness — as well as its potential to intersect with extreme and even violent corners of the internet — will be essential.  

    *[The Centre for Analysis of the Radical Right is a partner institution of Fair Observer.]

    The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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    Annexation or No Annexation, Little Will Change in Israel-GCC Relations

    It is important to question how the proposed Israeli annexation of 30% to 40% of the West Bank could impact Tel Aviv’s relations with the Gulf Cooperation Council (GCC) states. Although it is impossible to safely predict how regional dynamics would change if the annexation goes ahead, there are three main reasons why the move would probably neither elicit a discernible reaction from most Arab Gulf sheikdoms nor irreparably damage Israel’s existing partnerships with GCC members.

    First, most regimes in the Arabian Peninsula do not perceive Israel as a grave strategic threat, nor do most in the GCC view standing up for the Palestinian cause as a high-ranking priority, especially compared to dealing with the perceived Turkish and Iranian threats. Second, throughout the 20th century, Israel has developed extensive relations with some states in the GCC. Such engagement and cooperation spread across numerous domains such as intelligence, security and economic cooperation. Third, the question of Palestinian statehood is generally linked to either pan-Arabism or Islamism, and most Arab Gulf regimes seek to limit the power of such ideologies in their own countries.

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    Furthermore, while officials in the GCC have issued public statements warning Israel to not to go ahead with the planned annexation of the West Bank, such rhetoric is mainly intended for domestic and regional consumption and does not directly reflect the warming relations between Israel and the Gulf capitals. 

    Strategic Relations

    Foreign ministers and Gulf officials have publicly condemned the move, arguing that “annexation will certainly and immediately upend Israeli aspirations for improved security, economic and cultural ties with the Arab world and with UAE.” Moreover, Bahraini minister for Foreign Affairs, Abdullatif bin Rashid al-Zayani, expressed that the “Israeli plan threatens international peace and security and endangers the region,” while both Kuwait’s ambassador to the United Nations and Oman’s Ministry of Foreign Affairs issued similar statements condemning annexation. 

    Doha would likely react negatively to annexation based on the close relationships developed with Hamas and a litany of Islamist movements across the region since the 1990s. However, Qatar has had to go to pains to cement its close relations with the Trump administration amid the past three years of being subjected to a blockade by its neighbors. Thus, officials in Doha would likely have to be cautious about taking any steps vis-à-vis Israel and Palestine that could trigger a negative response from the most pro-Israel leader who has ever occupied the Oval Office.

    Embed from Getty Images

    At the same time, examining the strategic relations between Israel and the GCC member states allows one to understand the potential repercussions of annexation. Accordingly, Israel’s economic, security and intelligence ties with Saudi Arabia, Bahrain, Oman and the UAE are likely to withstand annexation. This is mainly due to most Arab Gulf states’ tactical acceptance of Israel’s military and technological predominance in the region, especially when viewed in terms of the perceived Iranian threat, Turkish “neo-Ottomanism” and Washington’s waning military commitment to the region. Notwithstanding Qatar and Kuwait, the UAE, Saudi Arabia, Bahrain and Oman all formed durable ties in the realms of security, intelligence, and economics. In the domains of security and intelligence, the common enemy — Turkey — and the threat of Iranian hegemony cohere Israel with the UAE, Bahrain and the Kingdom of Saudi Arabia.

    Israel and Arab Gulf states’ clandestine diplomatic engagement began decades ago and surfaced into overtly public relations. Consequently, the move toward normalization of ties has shuttered away the long-standing Arab demand that Israel withdraw from lands captured in 1967 as a precondition for acceptance of Israel.

    Omani-Israeli relations are largely predicated on clandestine diplomacy and are historically orchestrated by the Mossad, Israel’s intelligence agency. To be sure, Mossad officers have routinely traveled to Muscat to consult with Omani officials regarding Iran and other shared regional concerns. Oman’s willingness to work with Tel Aviv is based on a historic pattern of bilateral economic and political ties. It follows that Oman will not disrupt ties with the Jewish state but rather continue its historical role as a diplomatic mediator — a position Muscat is likely to attempt to embrace in the short term in the event of annexation.

    Durable Ties

    Moreover, Israel established durable intelligence and security ties with other GCC members. For example, Saudi Crown Prince Mohamed bin Salman (MBS) caused a bit of a surprise in the regional when he declared that “there are a lot of interests we [Saudi Arabia] share with Israel and if there is peace, there would be a lot of interest between Israel and the GCC.” Further, GCC support for Israel was expressed during the 2019 Warsaw Mideast Summit, with Saudi Arabia, Bahrain and the UAE’s chief diplomats all defending Israel’s right to exist and alluding that the perceived Iranian threat overshadowed the question of Palestinian statehood. That same year, MBS declared that “the Palestinians need to accept [Trump’s] proposal or stop complaining.”

    Although, as noted, Tel Aviv’s intelligence and security relations with GCC member states are predicated on sharing information regarding Tehran and terrorism, many Arab Gulf monarchies are acquiring signals intelligence (SIGINT) capabilities from the Israeli defense sector. As an anonymous European intelligence official told The Washington Post, “The tools you need to combat terrorism are the same ones you need to suppress dissent.”

    To be sure, the Israeli defense sector has sold GCC member-states SIGINT collection methods and eavesdropping capabilities to monitor internal dissent and entrench the power of the central authority. For example, Israel sold Saudi Arabia over $250 million worth of electronic and signals intelligence eavesdropping equipment in 2018, while Tel Aviv sold the Iron Dome advance air defense system to the kingdom a short time earlier. In 2016, Israel sold more than $1 billion to Arabian Peninsula sheikdoms, with most of the weapons directed to the Emiratis and Saudis, although the majority of such deals are kept secret.

    The defense and intelligence relationships are again important given the convergence of interests around the Iranian threat, Ankara’s ambitious and Muslim Brotherhood-friendly foreign policy, along with the relative decline of Washington’s regional influence. For many Gulf monarchies, Israel represents a strategic partner that can effectively contribute to regional and global efforts to counter Iranian conduct in the wider Arab/Islamic world, provide intelligence information and collection capabilities to counterterrorism operations, and eavesdrop on domestic detractors while also gradually embracing the regional security role previously commanded by Washington.

    Domestic perceptions triggered by annexation among the GCC population are likely to dilute the strength of public diplomacy between the Gulf monarchies and Tel Aviv in the short term, despite Riyadh and Abu Dhabi often viewing Hamas with trepidation given the group’s Islamist ideology and its relations with Turkey, Qatar and Iran. Saudi Arabia and the UAE are worried about Islamist movements and affiliated political power as a challenge to authority, yet they are equally concerned about domestic perceptions of annexation given the overtly public relations between the two monarchies and Tel Aviv.

    In sum, the annexation process is unlikely to rupture Tel Aviv’s relations with GCC members. Israel is united with the Arabian monarchies by the common perception of the Iranian threat, while the Israeli defense and intelligence establishment provides an abundance of weaponry, intelligence information and collection capabilities to Gulf partners. Moreover, while annexation will stir internal opposition in the region, the GCC member states are only likely to publicly condemn the policy while continuing with diplomatic engagement, trade, intelligence sharing and defense acquisitions.*[Gulf State Analytics is a partner organization of Fair Observer.]

    The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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    What Has COVID-19 Done to Small Businesses?

    Small and medium-sized enterprises (SMEs) are businesses with revenues, assets or employees below a certain threshold. SMEs are important to the health of any country as they tend to form the backbone of the economy. When compared to large enterprises, SMEs are generally greater in number, employ far more people, are often situated in clusters and typically entrepreneurial in nature. They drive local economic development, propel job creation and foster growth and innovation.

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    According to the World Bank, SMEs represent about 90% of businesses and 50% of employment worldwide. In the United States, 30 million small businesses make up 44% of GDP, 99% of the total businesses and 48% of the workforce, amounting to 57 million jobs. In India, the SME sector consists of about 63 million enterprises, contributing to 45% of manufacturing output and over 28% of GDP while employing 111 million people. SMEs in China form the engine of the economy comprising 30 million entities, constituting 99.6% of enterprises and 80% of national employment. They also hold more than 70% of the country’s patents and account for more than 60% of GDP, contributing more than 50% of tax collections.

    Different Countries Define SMEs Differently

    Though most experts agree on the crucial role SMEs play in any economy, the definition of an SME varies by country. In the US, the Small Business Administration (SBA) defines SMEs broadly as those with fewer than 500 employees and $7 million in annual receipts, although specific definitions exist by business and sector. Annual receipts can range from $1 million for farms to $40 million for hospitals. Services businesses such as retail and construction are generally classified by annual receipts, while manufacturing and utilities are measured by headcount. In June, the Indian government revised its SME definitions, expanding the revenue caps on medium and small enterprises from $7 million and $1.5 million to $35 million and $7 million respectively. In the United Kingdom, a small business is defined as having less than 50 employees and turnover under £10 million ($12.7 million), whereas a medium business has less than 250 employees and turnover under £50 million. 

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    Proper definitions matter. If SMEs are classified well, their access to capital and other resources can improve. They can apply for grants, get tax exemptions, collaborate on research with governments or universities or access other schemes. This gives SMEs better opportunities to survive and thrive.

    Since SMEs tend to be the biggest employers in most economies, a good policy to promote them creates jobs and develops worker skills. Furthermore, proper definitions enable governments to focus their efforts regarding SMEs and level the playing field for them vis-a-vis large corporations.

    Given the scale and nature of their business models, SMEs operate at the mercy of vagaries of the economy, geopolitical events and local policies. They battle competition from multinational giants, volatile cash flows, fickle customers, demanding suppliers and constantly churning employees. But the COVID-19 pandemic has crossed all boundaries. While the 2000 crisis was a dot-com bust and 2008 was a collapse of the financial systems, 2020 is clearly the SME crisis. It is Murphy’s Law at its extreme — anything that can go wrong has indeed gone wrong.

    The coronavirus crisis started off in early 2020 as a supply shock, which has now turned into a demand shock, impacting customers, employees, markets and suppliers alike. The consequences can be potentially catastrophic with the International Monetary Fund estimating that SME shutdowns in G20 countries could surge from 4% pre-COVID to 12% post-COVID, with bankruptcy rates in the services sector increasing by more than 20%.

    SMEs are bearing the brunt of the economic and financial fallout from the COVID-19 pandemic, not least because many were already in duress before the crisis. This could have a domino effect on the economy, given the pivotal role played by SMEs. Therefore, it comes as no surprise that most governments have sought to intercede legislatively with their fiscal might to ameliorate the predicament of SMEs.

    Indian and American Response

    It is instructive to note how different countries have responded to the economic crisis. India is a good country to start with. In early May, the government announced a 20-trillion-rupee ($250 billion) stimulus package called Atmanirbhar, equivalent to 10% of India’s GDP. It was a mixture of fiscal and monetary support, packed as credit guarantees and a slew of other measures. The centerpiece was an ambitious 3-trillion-rupee ($40 billion) initiative for SMEs, including instant collateral-free loans, subordinate debt of 200 billion rupees ($2.5 billion) for stressed micro, small and medium enterprises (MSMEs), and a 500-billion-rupee ($6.5 billion) equity infusion. Perhaps the largest component of the stimulus was the Emergency Credit Line Guarantee Scheme (ECLGS) that provides additional working capital and term loans of up to 20% of outstanding credit. 

    Although the scheme received positive feedback, the initial uptake was slow. On the supply front, bankers fretted about future delinquencies arising out of such accounts as the credit guarantees only covered incremental debt. On the demand side, SMEs were worried about taking on additional leverage when there is uncertainty about economic revival. Moreover, a 20% incremental loan may not suffice to service payrolls and operating expenses and keep business alive.

    Also, while this scheme addressed existing borrowers, the fate of those who are not current borrowers is unclear. While initial traction for the scheme was low, the recent momentum has been encouraging. The finance ministry reports that as of July 15, banks have sanctioned 1.2 trillion rupees ($16 billion), of which 700 billion rupees ($9 billion) have been disbursed largely by public sector banks, although private sector banks have joined in lately.

    Meanwhile, even the largest global economy has struggled with its SME relief program. In mid-March, US President Donald Trump approved a $2.2-trillion package under the Coronavirus Aid, Relief and Economic Security (CARES) Act to help Americans struggling amid the pandemic. One of the signature initiatives under the act was the $660-billion Paycheck Protection Program (PPP) aimed at helping small businesses with their payroll and operating expenses. This program was distinct from its peers in its loan forgiveness part, in which the repayment of the loan portion used to cover the first eight weeks of payroll, rent, utilities and mortgage would be waived. 

    The program, though well-intentioned, has struggled with execution issues exacerbated by labyrinthian rules. Matters came to a head when the initial tranche of $349 billion ran out in April. The program had to be refinanced but, by June, it was closed down with $130 billion of unused funds in its coffers. The program was restarted again and extended to August by Congress.

    Worse, the program saw refunds from borrowers who were unclear about the utilization rules. Loan forgiveness would be valid only if the amount was utilized within eight weeks. This stipulation made SMEs wary because their goal was to use cash judiciously and optimize the use of the borrowed amount to last as long as possible. These rules have since been amended by the Small Business Administration. It now gives SMEs 24 weeks to use the borrowed funds and allows them more flexibility on the use of funds. In any case, questions have been raised about capital not reaching targeted businesses and unintended parties benefiting instead. 

    Despite the changes in SBA rules, the jury is still out on whether more SMEs will take out PPP loans. Some are lobbying for full loan forgiveness. However, dispensing of repayment requirements essentially creates handouts that could lead to the lowering of fiscal discipline and increasing incentive for fraud. A recent proposal by two professors, one from Princeton and the other from Stanford, suggests “evergreening” of existing debt, a practice that involves providing new loans to pay off previous ones. Though innovative, it is not quite clear how such a policy would provide better benefits compared to a loan repayment moratorium, especially when it comes to influencing future credit behavior. 

    In addition to the PPP program, the SBA has announced the Economic Injury Disaster Loans (EIDL) program. This offers SMEs working capital loans up to $2 million to help overcome their loss of revenue. The program was closed down on July 13 after granting $20 billion to 6 million SMEs. Maintaining equitability and efficacy in the distribution process has been a challenge, though.

    European Responses

    Europe’s largest economy, on the other hand, has fared relatively better. In early April, German Chancellor Angela Merkel announced a €1.1-trillion ($1.3 trillion) stimulus termed the “bazooka.” This constituted a €600-billion rescue program, including €500 billion worth of guarantees for loans to companies. The German state-owned bank KfW is taking care of the lending. The program also includes a cash injection of €50 billion for micro-enterprises and €2 billion in venture capital financing for startups, which no major economy has successfully managed to execute. Notably, the centerpiece of the German program is the announcement of unlimited government guarantees covering SME loans up to €800,000. These loans are instantly approved for profitable companies.

    Berlin’s relief measures were specifically targeted at supporting Germany’s pride, the Mittelstand. This term refers to the 440,000 SMEs that form the backbone of the German economy. They employ 13 million people and account for 34% of GDP. Many of these firms manufacture highly-specialized products for niche markets, such as high-tech parts for health care and auto sectors, making them crucial to Germany’s success as an export giant. Not surprisingly, these companies have seen a contraction in revenues, especially the ones that depend on global supply chains. 

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    The swift implementation of these initiatives, coupled with the resilience of the Mittelstand, is demonstrating that SMEs can survive and thrive in this environment. The Germans have also been preaching and practicing fiscal prudence in normal times, which has now worked in their favor. Germany can afford to inject capital and do whatever it takes to save its SMEs.

    Since its first stimulus, Berlin has followed up with an additional €130-billion package consisting of tax, SME loans and spending measures aimed at stimulating demand. This included a €46-billion green stimulus focused on innovation and sustainable projects such as e-mobility and battery technology. In keeping with the German tradition, the SMEs who make the Mittelstand have stayed agile as well. They are diversifying their customer base and pivoting their business models to more recession-proof sectors. 

    The UK, another major world economy, also launched an array of relief measures, including the Coronavirus Business Interruption Loan Scheme (CBILS) worth £330 billion ($420 billion). This was designed to support British SMEs with cash for their payroll and operating expenditure. It also announced the Bounce Back Loan Scheme (BBLS) focused on smaller businesses. This enjoyed a better launch than CBILS because the latter, with its larger loan quantum, required more vetting and paperwork.

    Loans from the CBILS initiative, although interest-free for a year, are only 80% guaranteed by the government. This makes banks less willing to lend during these troubled times because they are afraid of losing 20% of the loan amount. This slows credit outflow and starves SMEs of much-needed capital. As of July 15, less than 10% of the allotted capital had been utilized, which banks blame on an inadequately designed scheme. By mid-July, only £11.9 billion had been disbursed to 54,500 companies through the CBILS and £31.7 billion to 1 million smaller firms through the BBLS.

    Businesses have sought modifications from policymakers to existing schemes. These include hiking government guarantees for loans to 100% and waiving personal guarantees for small loans. The Treasury has agreed to some of these demands. Critics also point to structural deficiencies in the system. They believe the administrative authority for SME loans should be a proper small business bank instead of the British Business Bank, which was not designed for SMEs. Already, the UK government has warned that £36 billion in COVID loans may default. More drastic measures seem to be on the way, including a COVID bad bank to house toxic SME assets.

    Responses Elsewhere

    Economies around the world have been responding to disruption by COVID-19. It is impossible to examine every response in this article, but Japan’s case deserves examination. The world’s third-largest economy had been battling a recession even before the pandemic. Declining consumption, falling tourism and plunging exports were increasing the pressure on an aging society with a spiraling debt of over $12.2 trillion. The pandemic has strained Japan’s fiscal health further.

    In response to the pandemic, the Bank of Japan announced a 75-trillion-yen ($700 billion) package for financing SMEs, which included zero-interest unsecured loans. Additionally, the National Diet, Japan’s parliament, enacted a second supplementary budget, which featured rent payment support and expanded employment maintenance subsidies for SMEs.

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    The execution of these programs has been tardy. The government’s 2015 digitalization drive is still incomplete, impacting the distribution of subsidies and the implementation of other relief measures. Of the more than 400,000 applications for employment adjustment subsidies, only 80,000 companies received aid by mid-June. Application procedures are unnecessarily complex, adding to the woes of SMEs.

    Any discussion on SMEs in the global economy would be incomplete without examining China, which was the first country to deal with the COVID-19 disease. In February,  the government announced a 1.2-trillion-renminbi ($174 billion) monetary stimulus. Large state-owned banks were ordered to increase lending to SMEs by at least 30% in the first half of 2020. Three of these banks alone were supposed to lend 350 billion renminbi ($49.7 million) to small businesses at preferential rates. In addition, Beijing encouraged local policymakers to provide fiscal support to keep SMEs afloat.

    China’s stimulus seems more understated compared to other major economies and their own 2008 bailout package. After controlling the first COVID-19 wave in March, the Chinese have focused on restarting the economy and reopening businesses instead of relief measures and bailouts.

    In February, surveys in China showed that 30% of SMEs had experienced a 50% decline in revenue. Surveys also found that 60% of SMEs had only three months of cash left. At the end of March, almost half a million small businesses across China had closed and new business registrations fell by more than 30% compared to last year. The resumption of work has been an uphill struggle. In April, the production rate of SMEs had crossed 82% of capacity, but the sentiment had remained pessimistic. Notably, the Small and Medium Enterprise Index (SMEI) had risen from 51.7 in May to 53.3 in June, indicating that SMEs are slowly reviving.

    With the easing of lockdown measures, domestic demand in China has picked up, driving SME sales. In turn, greater demand is increasing production activity and accelerating capacity utilization, causing a mild rise in hiring. The green shoots of recovery of Chinese SMEs should encourage authorities worldwide. 

    Policy Lessons for the Future

    Governing nation-states is an arduous task at the best of times and especially so in a nightmarish year of dystopian proportions. No wonder governments worldwide have appeared underprepared to combat the COVID-19 crisis. Whilst predicting a global pandemic of this scale would be next to impossible, there were early warning signs that severe disruptions to global health care, supply chains and business models were imminent. Yet scenario planning and stress testing of economic models has been flawed, impacting the swift rollout of relief measures.

    The crisis has also underlined the importance of fiscal discipline when economies are doing well. Countries that do so can build a robust balance sheet to leverage during troubled times. This crisis also brings home the importance of evaluating and reevaluating the efficacy of the entities that deal with SMEs. Policymaking is an iterative process, especially when it comes to SMEs and bodies that oversee them must be overhauled periodically.

    Importantly, policies pertaining to SMEs must have inputs from those with domain expertise. Structures must take into account execution capabilities and speed of delivery. Instant loan approvals with suboptimal due diligence have to be constantly balanced against longer vetting but slower turnarounds. Similarly, policymakers have to analyze the various types of instruments, fiscal and monetary, that can be used for SMEs. What works in one country may not work for another. 

    It is important to remember the nuances of different policy measures, such as guarantees, forgiveness, monitoring and moratoriums. Guarantees are a sound instrument for relief but are potential claims on the government’s balance sheet and contingent liabilities. They also have little economic value if capital is not promptly delivered to SMEs. Forgiveness provisions have their own issues. They may be important in a crisis but could incentivize subpar credit behavior in the future. Similarly, monitoring is important but is impractical when millions of SMEs are involved. There is no way any authority can keep a tab on the intended usage of funds. Finally, moratoriums have their own problems. Businesses could misuse moratoriums, putting pressure on banks and making accounting difficult. They were cheered at the onset of the crisis but further extensions could be costly to the ecosystem. 

    Going forward, governments need to prepare for the long haul. The consequences of the COVID-19 pandemic will stay with us for the foreseeable future. What began as a liquidity crisis might well become a solvency crisis for SMEs despite the best attempts to avoid that eventuality. If that does happen, governments will need to plan for efficient debt restructuring. They will have to institute insolvency management processes while figuring out how to handle bad asset pools. In simple language, governments will have to make tough decisions as to distributing gains and losses not only among those living but also future generations.

    The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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    Trump Has Sent in the Feds

    US federal agents poured into Portland, Oregon, this month to crack down on anti-racism protests. They beat up peaceful protesters and fired impact munitions at demonstrators, seriously injuring one of them. They drove around the city in unmarked vans pulling people off the street.

    Oregon officials at every level — the city, the state and congressional representatives — have demanded that these agents of the Department of Homeland Security, the US Marshals Service and other federal authorities leave Portland immediately. The state has even filed suit against these federal agencies. The American Civil Liberties Union (ACLU) calls it a constitutional crisis.

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    President Donald Trump is doubling down, not backing down. He says that the paramilitaries are there to restore order. The Feds are preparing to descend on Chicago, and Trump is also warning Philadelphia and New York that they’re next. “Look at what’s going on — all run by Democrats, all run by very liberal Democrats. All run, really, by [the] radical left,” Trump said. “If [Joe] Biden got in, that would be true for the country. The whole country would go to hell. And we’re not going to let it go to hell.”

    Halfway around the world, meanwhile, the Russian authorities arrested Sergei Furgal, the governor of the far-eastern city of Khabarovsk, on charges that he orchestrated the murder of two men 15 years ago. Over the last week, tens of thousands of people have demonstrated on the streets of Khabarovsk demanding the release of this leader of the opposition to Russian President Vladimir Putin. Furgal and his supporters argue that the arrest is politically motivated.

    In Hong Kong, authorities are using a new national security law criminalizing many forms of protest to arrest several pro-democracy advocates, including the politician Tam Tak-chi, who was expected to run for the legislature in the September election. The action put an immediate damper on opposition efforts to select candidates for the vote. From Beijing, the Chinese Communist Party is cracking down on any challenges to its authority from the periphery, whether in Hong Kong, Xinjiang or Tibet.

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    Analysts of the new authoritarian wave that has swept across the world in the last few years have largely focused on power grabs in capitals. Leaders like Donald Trump, Vladimir Putin, and Xi Jinping have attempted to reduce the influence of legislative and judicial bodies in favor of their own executive power. They have targeted civil society and media. They have used the coronavirus crisis to consolidate their control.

    An equally important feature of this new authoritarianism is its intolerance for regional or local power bases that lie beyond executive reach. For countries that have federal structures, this means a conscious effort to strengthen the federal center at the expense of the regions. It’s part of the remaking of the nation-state in the 21st century, a reversal of the two-edged trend to devolve power to local authorities and delegate authority to international institutions.

    These nationalists don’t just hate globalists. They hate anybody who stands in their way, including just about any potential counterforce taking shape on the periphery.

    Trump and the New Civil War

    You might think that Trump’s embrace of the Confederate flag and Confederate generals is just an overture to his white nationalist supporters. It’s all that and more.

    Trump and his strategists are very consciously pitting states against each other in a replay of the pre-Civil War conflict over federal authority. Trump and his allies in predominantly red states want to reopen the US economy as quickly as possible, and he also wants to preserve the “freedom” of Americans to refuse to wear protective masks in public. This strategy echoes the arguments of southern states in the late 1850s to maintain their economic system without federal interference and to have the “freedom” to own slaves. Of course, the analogy is complicated by the fact that Trump is the head of the federal system.

    However, Trump disagrees with the public health authorities associated with the US government who support mandatory mask use. The president demonstrated his support of Georgia Governor Kemp, who unilaterally voided requirements to wear masks in Atlanta and other cities, by touching down unmasked in the state capital. Trump also backs those governors who reopened their economies prematurely and are reluctant to shut down again now that the coronavirus has returned with redoubled strength.

    The battle is shifting to a showdown over reopening public schools. Trump has ordered students to return in person for the upcoming school year, which will begin in some places next month. He has even threatened to withdraw federal funding from schools that don’t reopen.

    But the coronavirus is surging out of control in some states, including Florida, which is adding more than 10,000 new cases a day. If Florida were a country, it would be the eighth hardest-hit nation in the world. Only three countries are adding as many new cases of infection daily. And yet the governor of the state, Republican Ron DeSantis, is moving full speed ahead to bring children back to the local virus incubation centers otherwise known as schools.

    Trump might not have the public health agencies on his side. And the military balked at the president’s plan to send soldiers out onto the streets to suppress public protest.

    But the president has discovered that he still controls the security forces attached to other federal agencies. He deployed the National Guard in DC to tamp down protests last month, prompting a demand from the mayor of the nation’s capital for the president to withdraw the forces. Agents from both Immigration and Customs Enforcement (ICE) and Customs and Border Protection (CBP) were also used to police the demonstrations in the wake of the killing of George Floyd in May.

    Now, Trump is claiming that areas of the country under Democratic Party control are, in fact, swamps of anti-Americanism. He is deploying the classic vocabulary associated with dehumanizing America’s putative enemies prior to attack. This is no longer a conflict between red and blue. Trump is transforming America’s political divide into an existential battle between gray and blue, where the Feds are supporting a Confederate-friendly president and the rebellious states long for the return of a more perfect union.

    Trump’s use of federal paramilitaries is a classic tactic of autocrats to test how far they can push their authority and what forces they can count on in an emergency. The Black Lives Matter protests inadvertently provided Trump with that opportunity. Come election time in November, he’ll know which guns are on his side if he chooses to question the election results and stay in office.

    Where Dissent Flourishes

    Autocrats fear the periphery. It’s where dissent can germinate beyond the prying eye of the panoptical state. East Germany’s revolution in 1989, for instance, began with demonstrations every Monday in the southern city of Leipzig. The Romanian revolution a few months later was sparked by the Hungarian minority in Timisoara. The overthrow of Slobodan Milosevic in Serbia in 2000 began with protests by miners in Kolubara, an hour’s drive from Belgrade.

    Federal states face a continual tension between center and periphery that occasionally breaks the country apart (as with Yugoslavia and the Soviet Union). The Spanish government cracked down on Catalan moves toward independence in 2017, imposing direct rule for a time. Ukraine, Moldova and Georgia have all faced secession movements that have resulted in autonomous regions that claim statehood. Occasionally, breakaway regions achieve international recognition as states — Bangladesh, East Timor, South Sudan.

    The autocrat fears secession as well as anti-government protest. The first attacks the unitary power of the nation-state, the second challenges the unitary power of the ruler. It’s one and the same thing for the authoritarian nationalist.

    This is why Xi Jinping fears Hong Kong, Vladimir Putin worries about Khabarovsk and Donald Trump wants to stamp out dissent in Oregon. But it’s also why Turkey’s Recep Tayyip Erdogan has replaced the mayors of cities affiliated with the pro-Kurdish opposition party. It explains why India’s Narendra Modi has made it more difficult for state governments, particularly those led by the political opposition, to raise revenue. It’s why Brazil’s Jair Bolsonaro has clashed with state governors over their respective handling of the coronavirus pandemic.

    The new nationalists have defined “the people” in very specific ways to exclude portions of the population based on ethnicity, religion or politics. They are transforming the federal government into a tool to reward only those who support the ruler in the capital. They are attacking democracy, yes, but also reducing faith in governance more generally. What better way “to deconstruct the administrative state,” as alt-right guru Steve Bannon likes to say, than to turn the government into a body with no power beyond its military and police.

    The coronavirus and the economic downturn have brought the United States to its knees. But Trump also helped to hobble the nation. Now, he wants to deliver the knock-out blow all by himself.

    *[This article was originally published by FPIF.]

    The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More

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    Only Losers Pay Taxes: Apple and the Ingenuity of Tax Avoidance

    July 15 was a very good day for Apple. Not so much for the European Commission, nor for the Organisation for Economic Co-operation and Development (OECD). What happened? In 2016, the European Commission (EC), following a lengthy investigation, ruled that Ireland had granted Apple “illegal tax benefits” that “substantially and artificially lowered the tax paid by Apple in Ireland since 1991.” The taxes “saved” Apple some €13 billion ($15 billion). The Irish government set up and escrow account at the cost of €3.9 million in consultancy and other fees as Apple appealed to courts in Luxembourg.

    On July 15, the EU General Court rendered its landmark verdict. In a stinging rebuke of the European Commission, the court charged that the EC had failed to demonstrate “’to the requisite legal standard’ that Ireland’s tax deal broke state-aid law by giving Apple an unfair advantage.” The Apple case was supposed to be a hallmark for the EU Competition Commissioner Margrethe Vestager’s “crackdown on preferential fiscal deals for companies” by member states. In the words of a tax lawyer quoted in the Irish Times, the decision marked a “comprehensive defeat for the Commission.”

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    At the same time, it was a significant setback for the OECD’s initiative on “base erosion and profit shifting” or, put in less arcane terms, tax avoidance. Engaging top law firms, the new tech giants such as Apple, Amazon and Google have mastered the fine art of avoiding as much of the tax burden as possible. There are numerous reasons for this development, greed probably topping the list. On a more structural level, however, it is to a large extent the result of the process of financialization, which has been the dominant game worldwide over the past several decades.

    Part of the Package

    Financialization fundamentally changed corporate rationale, with shareholder value becoming the new doctrine. Shareholder value holds that the primary metric of success lies in the ability of managers to increase shareholder return. Forget about corporate responsibility, forget about corporate outreach to the community: The only thing that counts is raising a company’s stock value no matter what.

    Tax avoidance is part of the package. Over the past few decades, Fortune 500 companies have devised a range of ingenious strategies that allow them to legitimately avoid paying taxes. Many are so opaque that even specialists have a hard time figuring out what is happening, how and where. One of the more exotic strategies is the “double Irish with a Dutch sandwich.” Investopedia defines it as a tax avoidance scheme that “involves sending profits first through one Irish company, then to a Dutch company and finally to a second Irish company headquartered in a tax haven.”

    A second scheme that was popular in the United States a few years ago is corporate inversion. This “occurs when a U.S.-based multinational corporation restructures itself so that the U.S. parent is replaced by a foreign parent and the original U.S. company becomes a subsidiary of the foreign parent.” Ireland, Bermuda, England and the Netherlands were among the popular destinations.

    The case of Apple provides a perfect illustration of the ingenuity behind tax avoidance. The scheme hinges on Ireland’s sweetheart deal with Apple, which allowed the US-based company to avoid Ireland’s corporate tax of 12.5%. Instead, Apple paid as little as 0.005% in taxes. The profits Apple made in Europe were transferred to Apple subsidiaries located in Ireland — perfectly legally —  and the taxes were paid on the basis of Ireland’s rate instead of the country where Apple products were actually purchased. This saved Apple billions of euros.

    It needs mentioning that Ireland joined the Apple lawsuit. After the verdict, the Irish government hailed the outcome as a victory for Ireland, which, in the process, lost €13 billion in tax revenue — a rather perverse sense of accomplishment, given the dramatic impact COVID-19 has had on the country’s economy and public life. Like elsewhere in Europe, the measures introduced by the Irish government caused a dramatic surge in unemployment and drove the economy into a recession. It is likely to take years to recover from the pandemic. Under the circumstances, the money would have been quite welcome.

    The Curious Case of the Netherlands

    Over the past several decades, avoiding taxes has become big business. Estimates from 2017 suggest that tax avoidance and profit shifting by multinational corporations amounted to a global loss of somewhere around $500 billion. Not surprisingly, tax havens have multiplied throughout the world. To be sure, there are exotic offshore locations that have specialized in sheltering money, such as the Cayman Islands, Samoa, Mauritius or the British Virgin Islands.

    This, however, is only half of the story. The case of Ireland shows that advanced capitalist countries are hardly innocent. In fact, Europe — and even the European Union — abounds in tax havens, from the British island of Jersey to Luxembourg, Liechtenstein and Malta to the Netherlands.

    Recently, the Dutch have provoked much resentment among the EU’s southern members. At the height of the pandemic in Italy and Spain, both countries called on the member states to show solidarity with its southern neighbors. One of the ideas was to issue so-called corona bonds, which would have combined securities from different countries and “mutualized” debt. The idea was vigorously promoted by Italy but equally vigorously rejected by Germany and the Netherlands, alongside Finland and Austria, collectively known as the “Frugal Four.”

    The connotation was obvious. The fiscally responsible members were loath to subsidize countries they considered frivolous spenders — even in a situation that brought Italy to its knees. The Germans are accustomed to suspicion and hostility from other EU members. But the Dutch? After all, the Netherlands is a small country, known for their openness and liberal attitudes on sex and drugs. COVID-19, however, has changed these perceptions, at least in the southern parts of the EU.

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    And for good reasons. Not for nothing, one of the most egregious tax avoidance schemes has “Dutch” in its title. It turns out that the Netherlands is an important tax haven right in the heart of the EU — a tax haven that has done considerable harm to other member states. Earlier this year, the Tax Justice Network claimed that the Netherlands “cost EU countries $10bn in lost corporate tax a year.” Analysis revealed that US firms in Europe, instead of declaring profits in the EU countries where they were generated, “shifted billions in profits into the Dutch tax haven each year ($44 billion in 2017) where corporate tax rates in practice can be under 5 per cent.” In fact, “the Netherlands’ low effective tax rate and its frequent use as a conduit for profit shifting to other corporate tax havens like Bermuda, results in a huge transfer of wealth out of Europe and into the offshore bank accounts of the world’s richest corporations and individuals.”

    Estimates for Italy alone were that the country had lost €1.5 billion in revenue a year, “equivalent to more than twice the annual cost of running San Raffaele Hospital, one of the largest hospitals in Italy with approximately 1350 beds.” Under the circumstances, Italian ire and disenchantment with the EU at the height of the pandemic, which cost the lives of thousands of Italians and paralyzed life in the country, are more than understandable. In this sense, the Apple verdict is nothing more than a Pyrrhic victory for Ireland and like-minded members of the European Union.

    The pandemic has drastically illustrated the importance of solidarity. Strategies that cater to the narrow interests of shareholders systematically subvert solidarity. Under “normal” circumstances, that might be fine. These days, it is disastrous, not least because the notion of shareholder value (aka individual egoism) has penetrated every aspect of social life. Margaret Thatcher once remarked that society did not exist — there were only individuals and families. The disastrous current state of the US and Britain is a blatant indictment of this kind of thinking.

    The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy. More