Philippa Kaur

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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

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    Are We Ready to Drop the Term “Islamist” in Reference to Terrorism?

    On July 20, The Times released a report indicating that UK police held a forum to explore a request to change the terminology surrounding terror attacks now commonly defined as “Islamist.” The discussion, which included the head of Counter Terrorism Policing, Assistant Commissioner Neil Basu, and some 70 individuals with personal or professional experiences with terrorism, came as a result of the National Association of Muslim Police’s (NAMP) initial request for the abandonment of terms such as “Islamist” and “jihadi” on the grounds that they adversely impact public perceptions of the Muslim community.

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    Proposed alternatives to present terminology include “faith-claimed terrorism,” “adherents of Osama bin Laden’s ideology,” “terrorists abusing religious motivations” and “irhabi” — an Arabic term common in the Middle East to reference terrorists. The mere suggestion of a change has since sparked passionate debates online, which reveal a great deal about public perceptions of terrorism and how it is policed in the UK.

    Finding the Right Words

    As the initial report stated, according to the NAMP, the existing lexicon has contributed to Islamophobia, itself on the rise in recent years. Among the reported comments was one that noted how far-right terrorist Anders Breivik, whose 2011 attacks in Norway killed nearly 80 people, mostly children, and others have invoked Christian imagery relating to the Crusades, yet their attacks are not identified as “Christianist.” Presently, counterterrorism experts employ the terms “Islamist extremism,” “extreme right-wing” and “Northern Ireland-related” when discussing terrorist ideology.

    News reports included lines such as “The police emphasized to The Times that the reform was not certain to go ahead,” and Chief Superintendent Nik Adams also stated that “We have no plans to change the terminology we use at present but welcomed the debate and contributions.” Yet within hours of the article going to print, news outlets around the world have covered the story, opinion pieces have been printed, and thousands of comments have been posted online arguing about the implications of a name change. Notably, many of the reasons against any alterations evidence troubling narratives circulating in society.

    One of the most frequent points employed by critics of the proposal resides in the belief that “Islamist terrorism” and “jihadism” are the most fitting terms because they recognize the centrality of Islam to these group’s ideologies and motivations. A significant portion of comments agreed with the assessment that the current vocabulary may prove harmful to their Muslim neighbors and colleagues. Nevertheless, they claimed that, as terrorists justified their actions in relation to Islam, the description of their actions should be identified as such. Also, worryingly, in many instances, such arguments spiraled out to present Islam as an inherently or even uniquely violent religion. Some writers posted snippets of Islamic texts that appear to reference the use of terror or how to treat non-Muslims. Others responded to the news by arguing that Islam and democracy or its values are mutually exclusive.

    Emblematic of others, one advised that the UK should establish “an enquiry into why so many Muslims become radical; terrorists; grooming gangs etc. The scriptures/teachings must be challenged, not terminology watered down.” Meanwhile, comments such as “As far as I’m aware, the Jews don’t have a section that advocates genocide of unbelievers. Neither do Christians, or Sikhs or the Hindus. Neither do the atheists. This is a uniquely Islamic problem” and “What other religion does this? Genuinely…which?” can be found repeated across the internet.

    In particular, many commenters took issue with the National Association of Muslim Police’s observation about the double standard at play in failures to identify certain far-right terror attacks as linked to Christianity. Exemplifying arguments found repeatedly across various platforms, one widely-liked tweet argued that “We don’t talk about ‘Christianist’ terror because there’s no such Christian movement.” This narrative defies reality. As noted by some online, the Troubles in Northern Ireland had a clear sectarian Christian element, Catholic identity played a fundamental role in the Spanish Falangist movement, and the attacks on abortion clinics and providers by groups such as the Army of God were motivated by a particular view of Christianity. These are just the tip of the iceberg.

    Christian Identity

    The Christian identity movement has been in operation for upward of a century in the United Kingdom and around the world. Its vitriolic anti-Semitism and racism are rooted in an alternative interpretation of Biblical stories. In the United States, the iconic cross-burning of the Ku Klux Klan has served merely as a symbol of the organization’s long history of a particular racist Protestant theology, and the knights of the Ku Klux Klan’s party envisions the establishment of a “White Christian government.” Other groups known to have engaged or encouraged violence in relation to a hybrid Christian, racist ideology include White Aryan Resistance, Aryan Nations, The Order and the National Alliance.

    Bible passages were cited as justification by the suspected perpetrators of both the Tree of Life and Poway synagogue shootings. Meanwhile, Anders Breivik’s manifesto shows his ideology to have been anchored in his interpretation of Christian beliefs. He viewed himself as part of a crusade against the multiculturalism he viewed to be destroying Christian European culture. Brenton Tarrant, whose two attacks in Christchurch killed more than 50 people last year, likewise published a manifesto with references to his as a crusade and citing quotations from Pope Urban II, who is widely considered to have orchestrated the First Crusade. One of the most famous neo-Nazi authors, James Mason — who has been of significant influence to extremist organization Atomwaffen Division — wrote a book linking Adolf Hitler’s “Mein Kampf” to the Bible.

    The reality is that each of these groups uses or has used Christian symbols and religious writings to justify their violence and racist aspirations. They have also done so while claiming to be the true expression of Christianity. Literally hundreds of people have died, and many others been injured, at the hands of those claiming that they were acting in the name of Christian values.

    While debates may and can be had about the fact that certain terrorist organizations do identify with terms such as “jihad” or self-identify as “jihadis,” and that, thereby, counterterrorism’s use of the term is merely mirroring terms on the ground, it is important not to claim that Christianity has no links to extremism and terrorism. This leaves aside arguments about the lack of violence perpetrated in the name of other religions, of which there are also ample examples.

    PC Culture

    The other potential worrying element to the critical narratives surrounding the proposal are those about why such a discussion happened. Hundreds of users have cited it as evidence that the UK has fallen victim to politically correct, or PC, culture. Charles Moore’s Telegraph opinion piece, for instance, implies this, linking Basu’s participation in this terminology discussion with his previous comments about media’s role in radicalization or about Boris Johnson’s comments likening women in niqabs to letterboxes. “You might think Mr Basu would eschew political or media disputations,” Moore observes. “Not so,” he goes on, before concluding that the name should not change and that “AC Basu should forget this elderly argument and get back to proper work.”

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    Others take this to a greater extreme, viewing the news as a sign that the UK is now in the hands, or at the mercy, of dangerous ethnic and religious minorities, or that those in charge of counterterrorism policing are weak-willed, apathetic or even side with the terrorists. References to George Orwell’s “1984” abound.

    “The police are now part of the Islamist problem,” one user wrote. “They have been extensively ‘Common Purposed’ and are riddled with fifth columnists.” Another asked: “Who is representing the majority white population of the UK? The majority is the least needy; the country revolves around minorities.” Frequently, Basu and other senior law enforcement officers, as well as politicians, are urged to quit or are called out by name as being unfit for service based on accusations that this discussion signals their pandering to the Muslim population.

    At times, these accusations amount to declarations that a change to the terminology would make the UK less safe. Many claim that this discussion could be linked to the UK’s “grooming gangs.” As one user posited, this mentality was “the same sort of PC mindset that let child abuse rings thrive in this country.” While not often fleshed out, the apparent logic relies on the idea that a police force, unwilling to specifically name the nature of a terrorist’s ideology for fear of perceived discrimination, would also be less capable of policing and preventing crime.

    Debates about the use of terms such as “jihad,” “Islamic” and “Islamist” are not new. Since at least the inception of the war on terror, law enforcement officers, scholars, media and community advocates have clashed over the best terminology to employ when discussing terrorism. As only one more moment in this ongoing dialogue, UK law enforcement’s discussion this summer is not yet set to change anything, and even if law enforcement changed its classification, this would by no means ensure a change in media reporting or popular vernacular.

    Yet thousands of people took to the internet to express their opinions, and that fact must be viewed as significant. In particular, the rush to criticize the police for even entertaining such an idea, as well as the commonality in the rhetoric used to defend existing terms, is illuminating. They point to implicit (or potentially willful) blindness about who perpetrates terrorism in the name of religion, outright racism and Islamophobia, and genuine distrust of major government institutions. These reactions, in fact, implicitly reinforce the argument made by the National Association of Muslim Police that vocabulary does make a difference.

    *[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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    The Real Scandal of Chinese Hacking

    The image most people have of the world of espionage spans an intriguingly varied cast of contrasting personalities. It includes the colorful, the creepy, the beautiful but also the deceptively ordinary. It features a sexy Mata Hari and Christine Keeler. It stretches across history from Christopher Marlowe to the Cambridge Five, from Rosencrantz and Guildenstern to Julius and Ethel Rosenberg. And most people retain the image of the world-weary Cold War spies that have populated the novels of Graham Greene and John le Carré and the movies inspired by them.

    The advent of the internet has significantly transformed the landscape of spy-duggery. To be a spy used to require a solid education followed by intensive behavioral training and cross-cultural awareness. But in contrast with the past, the people identified as spies these days tend to be nerds: hackers, digital pirates and cyber-spies. Just as drone operators sitting in a remote location operating what resembles a video game console have increasingly replaced the soldier on the battlefield, the spies in today’s news are faceless operators. Their personalities are unknown and biographies singularly devoid of color and drama.

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    The picture becomes even more complex when we consider how the stories told about the cyber-spies emerge in the media. The source tends to be a government exposing them. But with so little substance to expose other than designating hidden lines of code, the public can’t even be sure that a newly-identified spy is real. And given that any clever coder motivated enough to rise to the challenge can hack the most secure target, the act that is identified as espionage may just be a feat of coding prowess by a teenager seeking to impress a few cyber-friends.

    We must not forget the need of some politicians in democratic nations to raise the alarm from time to time either to justify exceptional security measures they wish to impose, possibly for other reasons, or simply to prove to the electorate how vigilant they are in defending their vulnerable nation. In such circumstances, decoding the political intent behind incidents caused by coding becomes a major challenge. It is in such a context that, over the past week, the governments of the US and the UK have signaled at least two cases of spying by everyone’s favorite enemies in treachery: Russia and China.

    In the harvest of spy alerts from the past week, there was also what has become the obligatory mention of Russian meddling in Western elections (the Scottish independence referendum of 2014). But in the two contemporary cases that made the headlines, the goal turned out not to be the usual military, electoral or cultural goal (“sowing doubt” and “creating confusion”) but medical. The spies in question were seeking to hack research into the responses to COVID-19, the disease caused by the novel coronavirus.

    According to The Guardian, the US Justice Department has indicted two Chinese hackers “for seeking to steal Covid-19 vaccine research” and other acts of industrial espionage. “Justice Department officials said Li [Xiaoyu] and Dong [Jiazhi] targeted biotech companies in California, Maryland, Massachusetts and elsewhere but did not appear to have actually compromised any Covid-19 research.”

    Here is today’s 3D definition:

    Compromise:

    Allow an idea, concept, process or object to escape from the hands of a person or institution that has been jealously hoarding the idea, concept, process or object with a view to reaping the maximum profit from it

    Contextual Note

    The message that nothing was compromised will reassure the public. But, as often in these cases, the motivation and the supposed agency of the Chinese government are implied rather than proven. With its typical lack of clarity, CNN clarifies: “While the indictment does not specify if the hackers had been working at the behest of the Chinese government as they targeted the coronavirus projects, senior national security officials have been warning of Chinese government attempts to steal coronavirus research from US institutions for months.”

    In other words, much like Russiagate, if “national security figures” warned that something might be initiated by an identified agent (the Chinese government) and then something (but not exactly the thing they feared) does seem to happen, the conclusion requires no further investigation. That is exactly how conspiracy theories are built and justified, but it is also how the best scoops in the media are constructed.

    Historical Note

    In the world of geo-diplomatic intelligence spawned by the Cold War and continued by all nations who can afford it ever since, spying, hacking and spreading disinformation have become a kind of operational norm. This means that whenever a political leader needs to create a scare, there will always be one available for immediate exploitation. Over the past 70 years, alarms about spying and foreign meddling only burst into the media at moments in which leaders judge it expedient to draw such incidents to the public’s attention. In the midst of an intractable pandemic that has caused severe political grief to the leaders of the US and the UK, this is one of those moments.

    Most of these cases produce mild diplomatic incidents that may have immediate pragmatic consequences but rarely alter the balance of power or degenerate into forms of durable conflict. In today’s case, pitting China against the US, after the closure of the Chinese Consulate in Houston, the consequences appear to be far from negligible. It is, after all, an election year in the US and Donald Trump’s chances of getting a new four-year lease on the White House are rapidly dwindling. This may be just the first act of a four-month drama or an alternative scenario — alongside the Israel-Iran conflict — for Trump to have the tail towag the dog.

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    With the ultimate prospect of an intercontinental war, no one in the media seems to notice what is special and different about the idea of hacking research on COVID-19 treatments, cures and vaccines. That is because both the media and politicians have failed to ask the basic question: Why would anyone want access to urgent medical research?

    In a rational world in which nearly 8 billion people find themselves assailed by fear of contamination, accompanied by the gutting of their economies and the violent transformation of their way of life, research on treatments and cures should logically take the form of a universal collaborative project spontaneously shared among all competent experts and researchers across the globe. Instead, we are passively witnessing a competition driven solely by the profit-motive of a few.

    The real question is: Why isn’t this research already being shared? Why must it be hacked? Everyone knows the answer to that question. It is too obvious, too much a part of the landscape to mention. That is why they dare not even ask the question or assess the consequences. The winner of the race expects to be handsomely rewarded, benefiting from a monopolistic position. And the nation that harbors the winner will be the first to exploit it, with the option of hoarding.

    That is how today’s world order works and everyone seems to accept it as normal, even in these far from normal times. It’s a unified ideological system that governs both geopolitics and the economy. Competition, profit and what Thomas Piketty has called the “sacralization of property,” including industrial property, are the pillars of our historical heritage from the industrial age. 

    Secrets permit monopolies. Monopolies guarantee excessive profit. The rule of the game is that researchers on one side of the world must be unaware of the progress of their colleagues elsewhere. May the best researcher win. Yet this not only slows down progress toward a satisfactory solution, but it also increases the risk that the winning solution may be flawed or incomplete.

    In today’s world, sharing means compromise. But that is deemed unacceptable for a simple reason: Compromise means being compromised. Totally unacceptable.

    *[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 on 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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    London’s “Mega Mosque:” Islamophobia in the COVID-19 “New Normal”

    During the lockdown, the US-based news service, Breitbart, ran a story about plans for a new “mega-mosque” in central London. Proposed for the historic Trocadero building near Piccadilly Circus in the heart of London’s entertainment and theater districts, Breitbart claimed that plans had been submitted to Westminster’s local authority to convert parts of the building into a mosque with a capacity to host around 1,000 worshippers.

    Having been widely shared on social media, the Breitbart story not only claimed that local residents were shocked by the size of the mega mosque, but so too was it alleged that some had voiced concerns about the increased risk of terrorism, that worshippers would try and enforce an alcohol ban in the surrounding area, and that there would be a conflict with those frequenting Soho, London’s gay quarter.

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    While some of those lodging complaints about the mosque will no doubt have had legitimate claims, the Breitbart article clearly acted as a catalyst for the radical right in Britain to jump on the opposition bandwagon. By using the term “mega-mosque,’ Breitbart reverted a tried and tested trope that has been successfully deployed in other parts of the country by various radical-right groups to derail plans for other new mosques. While this affords an opportunity to consider how the radical right have focused on size when it comes to opposing mosques, so too does it give us a timely insight into how the radical right’s campaigns of Islamophobia might change in the “new normal” of a post-COVID-19 world.

    The “Old Normal”

    Standing on the corner of Shaftesbury Avenue and Piccadilly Circus, the Trocadero was built in 1896. Home to a restaurant until 1965, the building remained largely redundant until the early 1980s, when it was renovated and relaunched as an indoor entertainment complex, housing the UK’s first IMAX cinema and various other attractions, including the gaming arcade Segaworld. With every new initiative, however, came failure, and the building eventually became derelict in 2006. A year beforehand, Criterion Capital had purchased it along with another nearby building. Since then, the Trocadero has undergone significant changes: Today, for example, it houses a 740-bedroom hotel with a rooftop bar.

    Embed from Getty Images

    The man behind Criterion Capital is Asif Aziz. He also established the Aziz Foundation, an education charity for British Muslims that has its headquarters near Piccadilly Circus. The foundation was behind the plans submitted to the local authority to request permission to convert the basement and part of the ground floor into a prayer space and community center. With the intention of serving Muslims who live and work in the area, the plans state that it was likely that the prayer space would only attract near-capacity attendance for Friday prayers; on all other days, the plans claimed that no more than 100 worshippers would be in attendance. When the public consultation closed, nearly 9,000 comments had been filed about the plans. While the majority were supportive, a flood of comments opposing the mosque appeared once the mega mosque story was “broken” by Breitbart.

    Among these were a number of tropes that the radical right have been deploying about Muslims and the religion of Islam for some time: from changing the “character” of the area to the mosque being a potential “Islamist hotspot,” from Islam not being welcome in a “secular” society to the mosque being evidence of the further “Islamification” of Britain. Of course, the size of the mosque was also routinely cited as a problem.

    Under the “old normal,” the radical right have been scaremongering about the size of mosques for almost two decades. As the simple yet effective narrative goes, the bigger the mosque the bigger the threat posed. This was used to good effect in Dudley, a town on the outskirts of Birmingham in the West Midlands. While much was made of the size of the prayer hall, it was the height of the proposed minaret adjoining the “super-mosque” that garnered the most opposition.

    Alleged to be taller than the steeple of the town’s oldest church, opponents claimed Muslims were doing so in order to claim the supremacy of Islam over Christianity. Prompting more than a decade of radical-right protests, including some of the largest by the anti-Islam street protest movement, English Defence League, the plans for the mosque were withdrawn in 2018.

    Three years prior, a similar outcome met plans to build a 9,000-capacity “mega mosque” in Stratford, East London. There, more than a quarter of a million people signed a petition opposing the mosque following radical-right groups campaigns alleging that those behind the mosque had links with the 7/7 suicide bombers.

    The “New Normal”

    In the “new normal,” while various radical-right groups have jumped on the anti-mosque bandwagon, it has been by former anti-Islam political party and vigilante group, Britain First, that has led the way, at the time of writing acquiring near 125,002 signatures on its online petition to block the plans. Most interesting, however, are the reasons Britain First cites for opposing the new mosque.

    Alongside all of the old-normal reasons for doing so, it is the new attribution to the size of the mosque that is most insightful. As it states: “Local people have strongly objected to the application on the basis that the area was already heavily overcrowded even before the coronavirus pandemic introduced the need for social distancing – and that adding another 1,000 people, congregating in and around the mega mosque during prayer times would cause serious [problems].” As such, the new mosque should be opposed because it will increase the risk of spreading COVID-19 and thereby poses a threat to the health of local residents.

    While much has been made about the new normal that will ensue in the wake of the COVID-19 pandemic, what the Trocadero mosque shows is that some elements of the old normal will not only survive but will continue to thrive. As was the case in the old normal, mosques are problematic, the size even more so. Irrespective of any pandemic, little would appear to have changed.

    What does seem to have changed in the new normal, however, is how size is problematized. While the simple yet effective narrative technique used to be “the bigger the mosque, the bigger the threat posed” could, in the wake of 9/11,  always be understood as being either cultural or violent. As regards the former, this typically focused on the “takeover” of Britain, its values, way of life and so on. For the latter, this typically focused on terrorism and radicalization. Post-COVID-19, if Britain First is anything to go by, a more insidious dimension to that threat might now emerge. As the petition infers, the threat now posed by the mosque is also a biological one.

    Irrespective of whether such claims are true, one can see how effective and immediate this kind of claim could be among local people who are already fearful of the effects and impact of an invisible virus. Reshaping the narrative to “the bigger the mosque, the bigger the biological threat posed” may have the potential to be an even more effective means of mobilizing and opposing in the new normal than it was before. If Britain First is successful, expect others within the radical right to rapidly follow this new narrative technique in anti-mosque campaigns and other forms of Islamophobic mobilization throughout the UK.

    *[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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    India Must Abandon Nehru’s Failed Non-Aligned Policy to Confront China

    Troops from India and China have clashed this year in Ladakh and North Sikkim at the border between the two countries. Although there are immediate reasons for the clash, the deeper causes of India’s border disputes with both China and Pakistan are its post-independence historic blunders. India has catastrophically failed to establish, delineate and demarcate its boundaries when it was in a position to do so.

    Jawaharlal Nehru, the first Indian prime minister after independence in 1947, was a man of the leftist mold and so were many of his confidantes. They ignored reports of Chinese atrocities and progressive occupation of Tibet sent by Sumal Sinha, the Indian consul general in Lhasa, and Apa Pant, the dewan, the de facto prime minister, of the Himalayan kingdom of Sikkim, which at that time was a protectorate and is now a state of India.

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    Two influential Indians emerge with much discredit. One is V.K. Krishna Menon, India’s defense minister from 1957 to 1962, who resolutely maintained that India had nothing to fear from China. The other is K.M. Panikkar, India’s ambassador to China from 1950 to 1952, whose advice “proved to be unwise.” Panikkar persuaded Nehru to recognize China’s sovereignty over Tibet when Mao Zedong’s People’s Liberation Army (PLA) took over this de facto independent buffer state in October 1950. The historian T.R. Ghodbole records that Panikkar “advised Nehru not to raise the border issue” with China as the price for accepting the conquest of Tibet.

    One Indian leader shines in contrast. Sardar Vallabhbhai Patel, India’s first home minister and Nehru’s deputy, was prescient about the Chinese threat. He wrote a now well-known letter, to the prime minister, calling Chinese action “little short of perfidy.” Patel, a Gandhian from the right of the Indian National Congress party, argued that Chinese irredentism and communist imperialism were “ten times more dangerous” than Western expansionism or imperialism because it wore “a cloak of ideology.” The wise home minister died soon after writing this letter. Now, Indian policy was firmly in the hands of leftist ideologues who failed to take any of the steps he advocated to safeguard the country’s security interests.

    Misunderstanding China and Abandoning Tibet

    Nehru soon embarked on his misconceived policy of non-alignment. He wanted to be the moral leader of the Third World who pioneered a policy of peace in contrast to the militaristic policies of imperial powers. As a result, India failed to build up its own capabilities to defend its sovereignty and territorial integrity. Nehru forgot to heed the Roman doctrine that if “you want peace, be prepared for war; therefore, let him who desires peace get ready for war.” He also forgot the ancient Indian strategist Chanakya who postulated that “every neighbor is a potential enemy and an enemy’s enemy is a friend.”

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    It was this complete absence of strategic thinking that led to the debacle in Tibet in 1950. Even as China was building up its strength and repudiating so-called unequal treaties imposed by imperial powers, Nehru was content to swan around on the world stage as a moral, peaceful beacon for the world. It was this naive thinking that led the country to take the issue of Kashmir to the United Nations and fail to press home its military advantage in 1948. Back then, India was in a position to claim the entire state of Jammu and Kashmir, including the parts that China now controls.

    India failed to understand China’s worldview. Henry Kissinger, the former US secretary of state under President Richard Nixon, had his finger on the Chinese pulse in his book, “World Order.” He observes that China has considered itself as “the sole sovereign government of the world’ since its unification in 221 BC. It did not consider other monarchs as equal. They were mere “pupils in the art of governance, striving towards civilization.” The Chinese emperor commanded “all under heaven,” tianxia in Chinese parlance. China forms the central, civilized part, “the Middle Kingdom” of tianxia. It is supposed to inspire and uplift the rest of humanity.

    Chinese President Xi Jinping is the son of an ardent Maoist. Like Mao, he has emerged as a modern-day Chinese emperor. Xi has reintroduced this idea of tianxia. His first act when he became the leader of the Chinese Communist Party (CCP) in 2012 was to visit the Museum of Revolution. There he declared that China was ready to be a world leader “because of its 5,000-year-old history, the CCP’s 95-year historical struggle and the 38-year development miracle of reform.” This is the danger that Patel foresaw but Nehru did not.

    In 1950, India could have prevented the Chinese takeover of Tibet. It could have strengthened its garrison in Lhasa instead of withdrawing its troops, used its air force and supported the poorly equipped Tibetan forces. China was isolated internationally in the 1950s. The Western powers were anti-communist and did not like Chinese interference in Vietnam. China’s relations with the Soviet Union spiraled downward after 1955. India failed to build a coalition against China even when the West had shown interest in supporting the Tibetans. Indeed, as Atul Singh, Glenn Carle and Vikram Sood record in a detailed article on Fair Observer, India inexplicably turned down a permanent seat at the United Nations Security Council.

    Once China conquered Tibet, it was at India’s doorstep. In the 1950s, it stealthily took over 37,244 square kilometers of Aksai Chin and built a road connecting southern Tibet to Xinjiang. It also started claiming large chunks of Indian territory such as Arunachal Pradesh and parts of Ladakh. Indeed, the Chinese claim line extends right up to the plains of Assam.

    Singh, Carle and Sood have examined in some detail the various boundaries the British drew as their boundary with the Qing. China was in turmoil after its revolution of 1911-12 and Tibet was de facto independent. It was a buffer state where the British had many strategic assets, which India inherited but soon gave up to China. Released files of the Central Intelligence Agency reveal the extent of Nehru’s capitulation to Mao. India signed a treaty with China and inexplicably agreed to withdraw troops from Tibetan towns of Yatung and Gyantse, which were mainly trading posts, and also wind up the garrison in Lhasa. It handed over control of postal, telegraph and telephone facilities to the Chinese.

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    None of these concessions satisfied the Chinese. Instead, these missteps whetted the appetite of a resurgent Middle Kingdom. China did not accept any of the lines the British had drawn on the map and kept claiming more and more of Indian territory. Finally, war ensued. In 1962, China handed India a devastating defeat that continues to haunt the country to this day.

    The two countries severed diplomatic relations after the war. They restored them only in 1984. Since then, they have conducted several rounds of negotiations and signed several agreements but never been able to agree to define and demarcate the line of actual control (LAC), the de facto line dividing Indian and Chinese territory, or agree upon an international boundary. Despite India’s repeated efforts to get the LAC demarcated, the Chinese have been intransigent. It is far too convenient for them to have an undefined LAC, which allows them to alter it for strategic advantage whenever they have an opportune moment.

    China’s Expansionist Policy and Indian Response

    Chinese intransigence is the key reason why the two countries have been unable to come to an agreement. In 1960, Zhou Enlai, the Chinese premier, proposed formalizing the status quo. He suggested India keep what is now called Arunachal Pradesh while China would retain Aksai Chin. Later, Deng Xiaoping reiterated Zhou’s position. In 1962, Chinese troops largely withdrew from Indian territory and even vacated the strategic town of Tawang, a great center of Buddhist learning and pilgrimage.

    As per these actions, one could infer the Chinese took what they want. Sadly, this is not true. The Chinese have been consistently and persistently moving the goalposts. China now refuses to accept the McMahon Line in Arunachal Pradesh as the international boundary and is claiming Tawang again on the ground that the sixth Dalai Lama was born here. It is important to remember that the border alignment agreed by China with Myanmar follows roughly this very line.

    China has been constantly upgrading its military and building up its border infrastructure. It has also been breaching all the agreements that it signed with India. The only exception is the exchange of maps relating to the middle sector bordering the Indian state of Uttarakhand in 2005.

    This year, China has displayed unusual belligerence far exceeding past practices. It has exerted pressure in both North Sikkim and Ladakh. The proximate reason lies in India belatedly boosting its border infrastructure. It has built the world’s highest airfield at Daulat Beg Oldi (DBO). An all-weather road now goes east from Leh, the capital of Ladakh, to Durbuk and then further east to the Shyok river, from where it turns north and runs all along the LAC right up to DBO. This airfield sits at the base of a historic pass through the Karakoram and gives India access to Central Asia. It is also close to the strategic Siachen Glacier where India controls the commanding heights and dominates Pakistan.

    For decades, India neglected its border infrastructure. Defeat to China in 1962 scarred the country. Its policymakers went into a defeatist mindset. They thought good roads would be used by the Chinese to speed into Indian territory while rugged undeveloped terrain would slow down Chinese advance. Domestic organizations and foreign private companies have now dramatically altered the ground situation, especially in the western sector. This has made China nervous. It feels the China-Pakistan Economic Corridor (CPEC) — a trade route that is important for Beijing’s Belt and Road Initiative and its geopolitical strategy in South Asia — might be under threat. Indian troops could block off its access to Gilgit-Baltistan.

    Possibly as a reaction, Chinese troops have been pressing at strategic points on the Ladakh border such as Gogra Hot Springs, Depsang Bulge, Galwan Valley and Pangong Tso Lake. They want to make sure that the road India has built to its airfield at DBO comes within range of Chinese gunsights. Nibbling Indian territory has been the general strategy for a long time. The Chinese are infamous for following “salami tactics” not only with India but also with other neighbors like Vietnam or Japan.

    Increasingly, China appears to be unnerved by India’s strategic direction. In 2017, New Delhi was firm in defending Bhutan’s territory in Doklam Plateau, which China lays claim to. India has strengthened ties with Australia, the European Union and the US. The specter of the Quad, an alliance of India, Japan, Australia and the US, blocking the Straits of Malacca — an international waterway — haunts China. In particular, China fears that the US is backing India to be a counterweight to China in Asia.

    Under President Xi, China has been increasingly aggressive on its borders. It has also been repressive internally. China has tightened the screws on Hong Kong, Tibet and Xinjiang. The Belt and Road Initiative is another example of Chinese expansionism.

    China’s recent belligerence might come from a deep sense of insecurity due to several recent developments. The US has unleashed a trade war that has hit China’s export-oriented economy hard. Furthermore, capital and manufacturing have been moving to Indonesia and Vietnam. India has now made a play for that capital as well. In addition, Western countries have criticized China for its domestic as well as external actions. The COVID-19 pandemic has blotted its record and lowered its global image. India has supported the US in calling out China on its suppression of information about the pandemic and in instituting an inquiry into the origins of the COVID-19 disease.

    India has long borne the brunt of Chinese aggression. It has never raised the issue of an independent Tibet in the international arena. It was the first non-socialist country to recognize China. Yet China has consistently acted against India’s interests. It has used Pakistan as a proxy against India. Beijing has even provided nuclear technology and fissile material to Islamabad. It blocks India’s membership of the Nuclear Suppliers Group, an organization of nuclear-supplier countries. It has built a port in Sri Lanka and instigated the communist government in Nepal to act against India’s interests.

    The time has come for India to stand up to China’s bullying. The nation cannot allow China to keep gobbling up Indian territory. India has to keep modernizing its military, building up its border infrastructure and developing closer ties with other nations threatened by China. Most importantly, India has to recognize that China is its principal strategic enemy, both in the short and the long term. Therefore, India has no option but to cast off its failed non-aligned policy and ally with the US against China. Only a full-fledged military alliance between the world’s two largest democracies will deter the world’s biggest tyrannical regime.

    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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    in World Politics

    The Travails of America’s Higher Education

    American universities are among the best in the world. Harvard, Stanford, MIT and Yale, to name but a few, attract the best and the brightest of their generation, year after year. The competition is brutal. Most applicants are rejected. American universities, however, are not only among the best in the world — they are also among the most expensive. A non-resident student at one of the top public universities, such as UCLA, Berkeley or the University of Virginia, pays more than $ 150,000 for a four-year undergraduate degree. A professional master’s degree, such as business or law, costs you well over $100,000 a year. No wonder that higher education has become a multibillion-dollar quasi-corporation, with university presidents behaving — and being remunerated — like CEOs.

    Until COVID-19, business was booming. The pandemic, however, has thrown a monkey wrench into the works, and university administrators are at a loss of how to respond to the crisis. The problem is that as higher education in the United States morphed into big business, it increasingly reached out beyond America’s borders, actively seeking to recruit international students. Last year, for instance, there were some 90,000 German students enrolled in American universities. Their numbers pale, however, in comparison to Chinese students, who in recent years amounted to over 350,000. Universities love foreign and non-resident students if only because more often than not they pay full tuition.

    Up in the Air

    The combination of COVID-19 and Trumpian nativism poses a serious threat to this arrangement. As the pandemic spread across the nation, universities were forced to close their doors and go online. And with the pandemic threatening to engulf the whole nation, largely thanks to the administration’s incompetence and utter lack of preparedness and empathy, the immediate future of higher education is completely up in the air. Foreign students are in the United States on a visa that requires them to pursue their degree at a (physical) university. As universities become virtual, switching to online teaching, this no longer applies, or so Immigration and Customs Enforcement (ICE) announced in early July.

    This meant international would be required to leave the country or face deportation. Immigration suggested that international students whose university moved online consider transferring to another university that still offered in-person instruction – under the circumstances a rather ridiculous proposition. In any case, ICE announced that the Department of State would no longer “issue visas to students enrolled in schools and/or programs that are fully online for the fall semester” nor would immigration authorities “permit these students to enter the United States.”

    Student Visa Debacle: All One Needs to Know About Trump’s Presidency

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    In response, a number of major private and public universities filed a lawsuit against the federal government over the measure. In the days that followed the administration reversed course, admitting the “proposal” had been “poorly conceived and executed.” This, however, failed to smooth the waves of academic indignation. On July 14, the president of MIT, Dr. L. Rafael Reif, wrote an op-ed in The New York Times, in which he claimed that America needed foreign students. Foreign students, he charged, were essential for American competitiveness and innovation. “As a nation,” he maintained, “when we turn our backs on talented foreign students, we not only lose all that they bring to our classrooms and laboratories, we also give up a strategic asset.”

    To illustrate the point he chose as an example Chinese PhD students — not particularly felicitous given the current anti-Chinese sentiments prevalent in America today. Most recent data showed, he wrote, “that 83 percent of Ph.D. students from China, the kind of highly trained scientists and engineers who drive American innovation, were still in the United States five years after completing their degrees.”

    The Resentment of the Privileged

    The New York Times allows its readers to comment on op-ed pieces. It is difficult to know if Reif was prepared for some of the responses he got from his readers. Quite a number of commentators questioned the MIT president’s motives behind his defense of foreign students, and particularly Chinese students. Others insisted that American students should get preference. Others charged that foreign students were “squeezing out” qualified American applicants for the simple reason that American top universities put them in a position to do so. Undoubtedly, resentment transcends class boundaries.

    There are, however, good grounds for this resentment. One of the most burning socioeconomic issues today is inequality. COVID-19 has once again drastically shown that inequality is a multidimensional phenomenon, related to a range of markers — gender, race, class and particularly education. Take, for instance, “assortative mating,” which refers to the tendency of people to choose a partner with a similar background, such as education level. Studies show not only that assortative mating has steadily increased over the past decades, but also that it has a non-negligible impact on socioeconomic inequality.

    It has also been shown that parents’ education level has a significant impact on their child’s educational attainment. Children from families where the parents are highly-educated are more likely to succeed in high school, more likely to attend and graduate from university and more likely to get a well-paying job. In this way, inequality is passed on to the next generation.

    A second reason for the resentment expressed by some of the comments in The New York Times is probably more mundane, more “human, all too human.” Top American universities are the incubator of America’s elite, similar to Oxbridge in the UK and the grandes écoles in France. With top universities seeking to attract foreign students, there are fewer spaces from the “native-born.” Given the profile of the average reader of The New York Times, the resulting resentment is quite understandable. Nativism is usually associated with “ordinary people” having to compete with migrants for scarce resources such as social welfare.

    This does not mean, however, that the privileged are immune to nativism. And the resentment of the privileged is bound to increase in the years to come. Until now, highly educated professionals in the West were largely protected against international competition. Studies suggest that COVID-19 is going to boost trade in services. The acceleration of trade in services, in turn, is likely to affect a range of professional services — finance, consulting, accounting, legal services, even medicine — hitherto shielded from international competition. Under the circumstances, the resentment of the highly educated is perfectly understandable. Foreign students from China and India at Harvard and MIT are the likely competitors of their offspring a few years ahead. And they are likely to win the race.

    Luxury Good

    It appears American higher education is in a pickle, some of its own making, some not. The reality is that higher education has become a luxury good in the US. For most Americans today, college education represents the second-largest expense after buying a home. Over the past three decades or so, tuition costs have more than doubled, in some cases significantly more. One of the reasons has been deep cuts by states for higher education, particularly in the wake of the Great Recession: Since 2008, tuition and fees in four-year public schools increased on average by more than 30%.

    At the same time, however, universities are also to blame. One of the main reasons for the spiraling costs of higher education is the dramatic expansion of university bureaucracy. In the years following the Great Depression, and state funding cuts notwithstanding, administration costs skyrocketed. According to Forbes, between 1980-81 and 2014-15 school years, administrative costs at private and public schools increased from $13 billion to $122.3 billion. During the same period, instruction costs increased from $20.7 billion to $148 billion. In the process, the number of administrators has steadily risen largely outpacing the hiring of full-time faculty. In fact, in today’s universities, a significant part of the teaching is done by part-time faculty more often than not paid a pittance — around $3,000 per three-credit course.

    As has been the case in so many other areas, COVID-19 has brutally exposed the complete lack of awareness of what is happening in the “real” world and of preparedness for contingencies on the part of those supposed to be in charge in higher education, namely its highly remunerated administrators. In a recent scathing critique in The Chronicle of Higher Education, a Johns Hopkins University professor has released all the pent-up anger that has accumulated over the years: “Even as they continue enriching themselves,” he charges, “university executives have revealed themselves ineffective in one of the most basic corporate responsibilities: managing financial risk. In a few short weeks, astonishingly wealthy institutions across the country were reduced to slash-and-burn strategies to maintain their solvency. Having consolidated power in their hands over the last generation, leaders of America’s wealthiest universities lacked financial reserves — while also squandering the reserves of their communities’ trust and goodwill.”

    The professor’s ire is understandable, given the heavy losses Johns Hopkins has projected it will incur as a result of the pandemic and its impact on its faculty. The university expects losses for the next fiscal year to amount to more than $350 million, partially to be met by cutbacks. In addition to restrictions on new hiring, the possibility of furloughs and even layoffs, the president of the university announced that JHU would suspend the university’s contributions to individual retirement accounts — for all practical purposes amounting to a pay cut.

    COVID-19 marks a rude awakening for America’s premier universities, laying bare all the problems associated with the “corporatization” of the institution of the university and “the monetization of just about everything within the institution” that are at the root of their current predicament. Under the circumstances, the MIT president’s op-ed piece is understandable. It certainly won’t fix the system of higher education.

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