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      Could COVID-19 Bring Down Autocrats?

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      The outbreak of COVID-19 initially looked like a gift to autocrats around the world. What better pretext for a state of emergency than a pandemic?

      It was a golden opportunity to close borders, suppress civil society and issue decrees left and right (mostly right). Donald Trump in the United States, Viktor Orban in Hungary, Rodrigo Duterte in the Philippines and others took advantage of the crisis to advance their me-first agendas and consolidate power. Best of all, they could count on the fear of infection to keep protestors off the streets.

      However, as the global death toll approaches a million and autocrats face heightened criticism of their COVID responses, the pandemic is looking less and less like a gift.

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      The news from Mali, Belarus and the Philippines should put the fear of regime change in the hearts of autocrats from Washington to Moscow. Despite all the recent signs that democracy is on the wane, people are voting with their feet by massing on the streets to make their voices heard, particularly in places where voting with their hands has not been honored.

      The pandemic is not the only factor behind growing public disaffection for these strongmen. But for men whose chief selling point is strong leadership, the failure to contain a microscopic virus is pretty damning.

      Yet, as the case of Belarus demonstrates, dictators do not give up power easily. And even when they do, as in Mali, it’s often military power, not people power, that fills the vacuum. Meanwhile, all eyes are fixed on what will happen in the US. Will American citizens take inspiration from the people of Belarus and Mali to remove their own elected autocrat?

      People Power in Mali

      Ibrahim Boubacar Keita won the presidential election in Mali in 2013 in a landslide with 78% of the vote. One of his chief selling points was a promise of  “zero tolerance” for corruption. Easier said than done. The country was notoriously corrupt, and Keita had been in the thick of it during his tenure as prime minister in the 1990s. His return to power was also marked by corruption — a $40-million presidential jet, overpriced military imports, a son with expensive tastes — none of which goes over well in one of the poorest countries in the world.

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      Mali is not only poor, it’s conflict-prone. It has been subject to military coups at roughly 20-year intervals (1968, 1991, 2012). Several Islamist groups and a group of Tuareg separatists have battled the central government — and occasionally each other — over control of the country. French forces intervened at one point to suppress the Islamists, and France has been one of the strongest backers of Keita.

      Mali held parliamentary elections in the spring, the first since 2013 after numerous delays. The turnout was low, due to coronavirus fears and sporadic violence as well as the sheer number of people displaced by conflict. Radical Islamists kidnapped the main opposition leader, Soumaila Cisse, three days before the first round. After the second round, Keita’s party, Rally for Mali, claimed a parliamentary majority, but only thanks to the constitutional court, which overturned the results for 31 seats and shifted the advantage to the ruling party.

      This court decision sparked the initial protests. The main protest group, Movement of June 5 — Rally of Patriotic Force, eventually called for Keita’s resignation, the dissolution of parliament and new elections. In July, government security forces tried to suppress the growing protests, killing more than a dozen people. International mediators were unable to resolve the stand-off. When Keita tried to pack the constitutional court with a new set of friends, protesters returned to the street.

      On August 18, the military detained Keita and that night he stepped down. The coup was led by Assimi Goita, who’d worked closely with the US military on counterinsurgency campaigns. Instead of acceding to demands for early elections, however, the new ruling junta says that Malians won’t go to the polls before 2023.

      The people of Mali showed tremendous courage to stand up to their autocrat. Unfortunately, given the history of coups and various insurgencies, the military has gotten used to playing a dominant role in the country. The US and France are also partly to blame for lavishing money, arms and training on the army on behalf of their “war on terrorism” rather than rebuilding Mali’s economy and strengthening its political infrastructure.

      Mali is a potent reminder that one alternative to autocrats is a military junta with little interest in democracy.

      Democracy in Action in Belarus

      Alexander Lukashenko is the longest-serving leader in Europe. He’s been the president of Belarus since 1994, having risen to power like Keita on an anti-corruption platform. He’s never before faced much of a political challenge in the country’s tightly-controlled elections.

      Until these last elections. In the August 9 elections, Lukashenko was seeking his sixth term in office. He expected smooth sailing since, after all, he’d jailed the country’s most prominent dissidents, he presided over loyal security forces, and he controlled the media.

      But he didn’t control Svetlana Tikhanovskaya. The wife of jailed oppositionist Sergei Tikhanovsky managed to unite the opposition prior to the election and brought tens of thousands of people onto the streets for campaign rallies.

      Nevertheless, Lukashenko declared victory in the election with 80% of the vote (even though he enjoyed, depending on which poll you consult, either a 33% or a 3% approval rating). Tikhanovskaya fled to Lithuania. And that seemed to be that.

      Except that the citizens of Belarus are not accepting the results of the election. As many as 200,000 people rallied in Minsk on August 23 to demand that Lukashenko step down. In US terms, that would be as if 6 million Americans gathered in Washington to demand Trump’s resignation. So far, Lukashenko is ignoring the crowd’s demand. He has tried to send a signal of defiance by arriving at the presidential palace in a flak jacket and carrying an automatic weapon. More recently, he has resorted to quiet detentions and vague promises of reform.

      Just like the Republicans in the US who appeared as speakers at the Democratic National Convention, key people are abandoning Lukashenko’s side. The workers at the Minsk Tractor Factory are on an anti-Lukashenko strike, and many other workers at state-controlled enterprises have walked off the job. Police are quitting. The ambassador to Slovakia resigned. The state theaters have turned against the autocrat for the first time in 26 years.

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      Despite COVID-19, Belarus doesn’t have any prohibitions against mass gatherings. That’s because Lukashenko has been a prominent COVID-19 denialist, refusing to shut down the country or adopt any significant medical precautions. His recommendations: take a sauna and drink vodka. Like Boris Johnson in the UK and Jair Bolsonaro in Brazil, Lukashenko subsequently contracted the disease, though he claims that he was asymptomatic. The country has around 70,000 infections and about 650 deaths, but the numbers have started to rise again in recent days.

      There are plenty of oppositionists ready to usher in democratic elections once Lukashenko is out of the way. A new coordinating council launched this month includes former Culture Minister Pavel Latushko as well as prominent dissidents like Olga Kovalkova and Maria Kolesnikova.

      Even strong backing from Russia won’t help Lukashenko if the whole country turns against him. But beware the autocrat who can still count on support from a state apparatus and a militant minority.

      The End of Duterte? 

      Nothing Rodrigo Duterte could do seemed to diminish his popularity in the Philippines. He insulted people left and right. He launched a war on drugs that left 27,000 alleged drug dealers dead from extrajudicial murders. Another 250 human rights defenders have also been killed.

      Still, his approval ratings remained high, near 70% as recently as May. But Duterte’s failure to deal with the coronavirus and the resulting economic dislocation may finally unseat him, if not from office then at least from the political imagination of Filipinos.

      The Philippines now has around 210,000 infections and 3,300 deaths. Compared to the US or Brazil, that might not sound like much. But surrounding the Philippines are countries that have dealt much more successfully with the pandemic: Thailand (58 deaths), Vietnam (30 deaths), Taiwan (7 deaths). Meanwhile, because of a strict lockdown that didn’t effectively contain the virus, the economy has crashed, and the country has entered its first recession in 29 years.

      Like Trump, Duterte has blamed everyone but himself for the country’s failings, even unleashing a recent tirade against medical professionals. But Duterte’s insult politics is no longer working. As Walden Bello, a sociologist and a former member of the Philippines parliament, observes at Foreign Policy In Focus, “The hundreds of thousands blinded by his gangster charisma in the last 4 years have had the scales fall from their eyes and are now asking themselves how they could possibly have fallen in love with a person whose only skill was mass murder.”

      In the Philippines, presidents serve one six-year term, and Duterte is four years into his. He may well attempt to hold on for two more years. He might even pull a Vladimir Putin and change the constitution so that he can run again. A group of Duterte supporters recently held a press conference to call for a “revolutionary government” and a new constitution. Another possibility, in the wake of recent bombings in southern Philippines, might be a declaration of martial law to fight Abu Sayyaf, which is linked to the Islamic State group.

      But the combination of the pandemic, the economic crash and a pro-China foreign policy may turn the population against Duterte so dramatically that he might view resignation as the only way out.

      Democracy in the Balance

      Plenty of autocrats still look pretty comfortable in their positions. Putin — or forces loyal to him — just engineered the poisoning of one of his chief rivals, Alexei Navalny. Xi Jinping has just about turned Chinese politics into a one-man show. Viktor Orban has consolidated his grip on power in Hungary, Recep Tayyip Erdogan has suppressed or co-opted the opposition parties in Turkey, and Bashar al-Assad has seemingly weathered the civil war in Syria.

      Even Brazilian President Jair Bolsonaro, despite an atrocious record on both the pandemic and the economy, has somehow managed to regain some popularity, with his approval rating nudging above his disapproval rating recently for the first time since April.

      The US presidential elections might tip the balance one way or the other. Although America still represents a democratic ideal for some around the world, that’s not the reason why the November elections matter. Donald Trump has so undermined democratic norms and institutions that democrats around the world are aghast that he hasn’t had to pay a political price. He escaped impeachment. His party still stands behind him. Plenty of his associates have gone to jail, but he has not (yet) been taken down by the courts.

      That leaves the court of public opinion. If voters return President Trump to office for a second term, it sends a strong signal that there are no penalties for ruining a democracy. Trump operates according to his own Pottery Barn rule: He broke a democracy and he believes that he now owns it. If voters agree, it will gladden the hearts of ruling autocrats and authoritarians-to-be all over the world.

      Voting out Trump may not simply resuscitate American democracy. It may send a hopeful message to all those who oppose the Trump-like leaders in their lands. Those leaders may have broken democracy, but we the people still own it.

      *[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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      Will Millennials and Zoomers Save the Future?

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      “All of you young people who served in the war. You are all a lost generation.” This famous phrase is credited to Gertrude Stein by Ernest Hemingway, who popularized it in the epigraph to his 1926 novel “The Sun also Rises.” The phrase encapsulates the feelings of a generation, disillusioned by the civilizational breakdown witnessed during the Great War, the loss of faith in the ideals and values that had marked their pre-war youth, which left them empty and cynical. In Europe, many of them would ultimately find a new purpose in the ranks of Mussolini’s squadristi, Hitler’s Sturmabteilung and the various fascist movements that sprang up in their wake — with disastrous results.

      It might appear preposterous to compare today’s younger generations, millennials and zoomers (aka Generation Z), to Hemingway’s cohort of young women and men on both sides of the Atlantic. And yet there are good reasons to presume that today’s younger generations are going to be as deeply, if not more, scarred — socially, economically and psychologically — by COVID-19 as the Lost Generation was by World War I.  

      Foretaste of Things to Come

      The travails of COVID-19, as has been frequently noted, are just a foretaste of things to come. The combination of climate change and the destruction of natural habitats has made the outbreak of infectious diseases spreading from animals, such as bats and birds, to humans increasingly likely. As a landmark study published in Nature put it a decade ago, “mounting evidence indicates that biodiversity loss frequently increases disease transmission.” Or, to put it differently, “current evidence indicates that preserving intact ecosystems and their endemic biodiversity should generally reduce the prevalence of infectious diseases.”

      Unfortunately, the opposite has been the case. The current rate of extinction is “tens to hundreds of times higher than the average over the past 10 million years — and it is accelerating.” By now, humanity, which accounts for not more than a small sliver of life on this planet, is responsible for the loss of more than 80% of all wild mammals and half of all plants. The consequences are potentially catastrophic.

      For the moment, concerns about global warming and the rapid loss of biodiversity has been overshadowed by the all-consuming issue of COVID-19. And for good reasons. The novel coronavirus has severely disrupted life as we have come to know and expect it. And there is no end in sight. Its social, economic and psychological consequences, in addition to its impact on public health, has been profound and far reaching, particularly for the younger generations. Millennials, already pummeled by the fallout from the Great Recession of 2008, have been hit hard once again. For zoomers, the generation born between the mid-1990s and the early 2010s, COVID-19 is likely to be the formative experience shaping the rest of their lives.

      For both generations, the economic impact of the pandemic has been disastrous. Already last year, months before the pandemic hit the United States full force, Annie Lowrey wrote in The Atlantic that millennials were “likely to be the first generation in modern economic history to end up worse off than their parents. The next downturn might make sure of it, stalling their careers and sucking away their wages right as the Millennials enter their prime earning years.” The pandemic confirmed her worst fears. Early this year, Lowrey characterized the pandemic as a “financial tsunami for younger workers.”

      According to preliminary data, after the onset of the pandemic, “a staggering 52 percent of people under the age of 45 have lost a job, been put on leave, or had their hours reduced due to the pandemic, compared with 26 percent of people over the age of 45.” Federal aid was likely to do little to nothing to alleviate their financial woes.

      The outlook is equally bleak for zoomers. According to the consulting firm Delloite, in April and May 2020, 30% of Zoomers reported having lost their job or having been put on temporary, unpaid leave. This is particularly ironic. As Mathew Goodwin has recently noted, zoomers “find themselves in a strange position — on the one hand, they are on track to be the most well-educated generation in history but, on the other, they are entering the labour market amid one of the most challenging periods in history.” Given their educational background and levels of skills, their prospects in the labor market should be bright; instead, they are nothing short of bleak.

      At least for the moment, opportunities for internships have largely dried up, entry positions are rare and, for those who manage to get one, the pay is low. And things are unlikely to get better any time soon, given the depth of the coronavirus-induced recession. As an essay in The Economist recently put it, “Economic misery has a tendency to compound. Low wages now beget low wages later, and meagre pensions after that. The prospect of middle-aged drudgery beckons.”

      After Us, the Deluge?

      The Lost Generation’s soul-shattering experience of senseless death during the Great War turned many of them cynical while leading them into aimless and reckless pursuit of vacuous, decadent hedonism, reflected in the writings of F. Scott Fitzgerald and the paintings of George Grosz. Given the circumstances, one might expect history to repeat itself, not as a “grand tragedy” but as a “rotten farce,” as per Karl Marx’s “The Eighteenth Brumaire of Louis Napoleon,” reflected in the infamous “COVID parties” on the beaches of Florida, with their flair of Russian roulette, scripted according to the adage “after me, the deluge,” or, more prosaically, “who gives a shit about the future.”

      As it turns out, zoomers do — or so a growing number of recent studies suggest, whether produced by think tanks or by business consulting firms seeking to exploit Gen Z’s consumer potential. The results are nothing short of stunning, the implications potentially revolutionary. Take global warming. In 2019, an Amnesty International-sponsored survey found more than 40% of young people considering global warming the most important global issue. At the same time, however, almost half of zoomers and more than 40% of millennials thought that it was already too late to repair the damage caused by climate change.

      This, however, does not seem to have turned them cynical, self-centered, apathetic or escapist. On the contrary. An article in Forbes, written at the height of last year’s global mass demonstrations calling for action to confront climate change, put it best, claiming that Gen Z was “a force to be reckoned with. They’re not trying to change the world; they’re already doing it and, in many cases, they’re leading the way.”

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      Recent studies support this contention. They find that the younger generation holds deeply engrained values that more often than not are in complete opposition to the values that dominated advanced capitalist societies pre-coronavirus. In the face of a resurgence of ethnocentrism and tribalism, they cherish diversity while rejecting the knee-jerk nationalism that has been the hallmark of right-wing populism currently en vogue from Britain to Denmark, from Italy to the United States.

      Unlike their elders, who for decades allowed themselves to be subjected to incessant neoliberal indoctrination claiming that the state is part of the problem, that only markets get things right, that society does not exist, and that everybody fends for themselves, zoomers are pro-government and supportive of a strong state. COVID-19 has not only validated and reaffirmed their belief in government action and the extension of social welfare policies but also in the necessity of fundamental, radical change.

      With Gen Z, the old slogan from the student movement of the 1960s that “the personal is political” has come back with a vengeance — and a new meaning. We have seen it with the controversies over the wearing of masks that have shown how quickly and to what degree personal choice turns into political statement these days. Today, as a number of top-notch business consulting firms have affirmed, this is particularly true with respect to consumption patterns and consumer choices. Veganism, for instance, is not only a lifestyle choice — it is also, and in some instances even predominantly, a political statement. As Deborah Kalte has recently noted, the “vast majority of vegans is politically motivated and aims to induce change in society at large.”

      In the past, as Thorstein Veblen and Pierre Bourdieu have argued and shown, consumption served as a marker, a sign of distinction, and this in a very material sense. Today, or so a number of studies suggest, at least with the younger generation, consumption is tied in with ideals and values, which makes it highly political.

      The Personal Is Political

      Even before the onset of the pandemic, business reports noted the central importance of sustainability for the younger generation. In 2015, a Nielsen report found more than 70% of global millennials were willing to pay more for sustainable goods. Five years later, a First Insight report found that “the vast majority of Generation Z shoppers prefer to buy sustainable brands, and they are most willing to spend 10 percent or more on sustainable products.” At the same time, the report noted that Gen Zers and millennials “are the most likely to make purchase decisions based on values and principles (personal, social, and environmental).”

      And the revolution does not stop here. Business consultants have already set their eyes on Generation Alpha — the offspring of the millennial generation and younger siblings of Gen Z — who populate today’s cradles and kindergartens. As an article in Wired puts it, the “latest age group to emerge are barely out of diapers, and the internet is already serving them ads.”

      Raised and influenced by their millennial parents and Gen Z siblings, they are expected to be just as progressive and radical — even more so — as their immediate elders, or so a recent report from the e-commerce consulting firm Wunderman Thompson Commerce wants us to believe. Confronted with myriads of global crises — humanitarian, ecological, economic, social — they are characterized as “uniquely ethically inclined and value-led.” This is based on the finding that more than two-thirds “of 6 to 9 year olds say that saving the planet will be the central mission of their careers in the future, joining the fight that current Gen Zs are leading.” An equally large proportion indicated they would like to buy from companies that “are trying to do good in the world.”

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      If the findings of these studies are true, things are likely to heat up considerably in the near future, both socially and politically. What the younger generations represent is a reality that is fundamentally at odds with the one peddled by Donald Trump, Boris Johnson, Jair Bolsonaro and Scott Morrison (Australia’s champion of coal), to name but a few. There is a huge gap between the perceptions and values of the younger generations and those of the older generations, as most recently seen once again with COVID-19, whether with regard to wearing masks or accepting track-and-trace apps. Today, the fate of the planet is to a large extent in the hands of generations that are unlikely to experience the full force of the disasters their actions and inactions have caused. The reality is that governments, corporations and the older generation have largely failed the younger generations and continue to do so — with catastrophic consequences.  Over the past several decades, governments have piled up huge amounts of national debt.  With COVID-19, they have added further layers, bound to impose yet another enormous burden on today’s youth.     

      Under the circumstances, it might be tempting to dismiss them as another Lost Generation. It bears remembering, however, that it was the original Lost Generation that was instrumental not only in the rebuilding of much of Europe after the Great War, but also in the establishment of the postwar liberal order — “embedded liberalism” — and the entrenchment of the social-democratic welfare state. 

      Today, we confront another crucial moment. Once again hope rests on the younger generations to provide the vision and energy not only to meet the numerous social, economic, cultural and particularly ecological challenges that threaten to overwhelm humanity. All available data suggest that they are quite prepared to meet the challenge, if only because they don’t have much of a choice. Chances are that the young people will make a difference — provided their parents and grandparents will take them and their concerns and worries seriously, rather than dismissing them as alarmism or folly.

      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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      Boris Johnson Takes England, and COVID-19, Back to Square One

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      Not only has UK Prime Minister Boris Johnson failed to learn from other countries’ dealings with COVID-19, he has stubbornly refused to learn from his own experience. He is the true king of fools. It would be laughable were it not for the tens of thousands of deaths he and his government are responsible for.

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      On March 23, Johnson led England into a lockdown. It was far too late. In May, he led the country out of lockdown in what was supposed to be an incremental fashion. It was far too early. It was also confusing, chaotic and only encouraged people to abandon all pretense long before the final restrictions were lifted in July and August. Johnson is now back where he started, declaring, as he did before March 23, that normality and the economy must be preserved at all costs. As before, infection rates are on the rise, especially in London and parts of the north. As before, these facts are being ignored. Under no circumstances will a second lockdown be contemplated, nor will schools close after September 1. Responses to any future outbreaks will be localized and short term.

      If Possible

      The guidance being handed to England’s hapless schools is remarkably similar to that issued back in January, February and March: wash your hands, clean surfaces and, if possible, keep your distance from each other. (The government adds “if possible” to its documents because it knows full well that such distancing is impossible in most schools and in most classrooms.) As before, teachers or children who are clinically vulnerable — or who are shielding a husband or wife, a mother or father, a daughter or son who is clinically vulnerable — can attend school and should do so when the new term starts in early September.

      If you are a parent who is determined to keep your child at home, you will be fined, as before, by the secretary of state for education. And, as before, there will be no testing unless someone displays symptoms. There is, however, one innovation being introduced this time around: children, parents and staff who do show any symptoms are asked to get themselves tested, to trace contacts and to report their findings to the school.

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      Johnson’s motivation for all this nonsense is the economy. He is seemingly and willfully unaware that it tanked by a whopping 20% of GDP in the first quarter, compared to just under 12% across the EU. This is not because Johnson locked down too early and for too long, but because he didn’t lock down early enough or for long enough and didn’t take that breathing space to organize an effective track-and-trace regime or institute a mask-wearing culture. He also failed to engage with local governments and instead treated them with contempt and withheld from them the information they needed to protect the vulnerable. He has, in other words, assiduously ignored the best strategies that are on public display in China, Taiwan, Hong Kong, Macao and South Korea. These include the restriction of movement and physical distancing, rapid identification of positive and suspected cases through mass testing, and the immediate isolation of positive and suspected cases with appropriate treatment rendered.

      The pillars of Seoul’s response, for example, are promptness and transparency, and a willingness to learn from the 2015 MERS outbreak. Government, local and national, did not hesitate: It tested aggressively, launched epidemiological investigations and imposed quarantines, shared information and began disinfection efforts.

      South Korea saw its first confirmed case of COVID-19 on January 23. Within a week, hand sanitizers and disposable masks were being distributed for free on public transport, and seats and handles were being disinfected. Within 16 days of the first case, museums, galleries and other cultural venues, along with taxis, subways and buses, were being sterilized with ever more frequency, and people who had been exposed were quarantined and given specialist medical care. Within four weeks, screening stations were up and running around the clock. Risky venues such as bars and cafes were closed, and treatment was being extended to citizens with suspected COVID-19 symptoms. Within five weeks, public facilities were shut.

      Unsurprising Results

      In the UK, within five weeks of the first confirmed case on January 29, Johnson, on the best scientific advice the country could muster, had done almost nothing. The government’s modeling group had advised that isolation and tracking wouldn’t do much other than delay the peak of the epidemic. Life might as well go on as normal. Masks were not needed. More proactive measures were not advised until six weeks after the first case. On March 3, Johnson’s government, having listened to the great and the good of Britain’s scientific community, declared that it would be better if people did not shake hands. That same day, Johnson proudly boasted that he had been shaking hands with everyone, including coronavirus patients.

      The results are as stark as they are unsurprising. While the UK has had more than 60,000 deaths and has taken the worst hit to its GDP year on year in the second quarter in 64 years, just over 300 people have died from the virus in South Korea, its economy grew through the first quarter and is expected to manage around -0.8% over the year. Even in the Philippines, where the government has been equally as irresponsible as Johnson’s, there are those who see the choice between keeping the economy going and tackling COVID-19 as an entirely fictitious one.

      Yet perhaps the most exasperating thing about this whole sorry debacle — surely the worst exhibition of foolhardiness and incompetence since the 1853 Crimea campaign, the First World War, Chamberlin’s policy of appeasement or Britain’s chaotic and bloody withdrawal from India (take your pick) — is the fact that Boris Johnson is still in Number 10. Not so long ago, a few weeks before the outbreak, I heard a young lecturer, a social psychologist from China, say that the English, so used to being smothered by their government and their aristocracy, are most at ease as placid and compliant followers. I’m beginning to see what she meant.

      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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      Is Europe More United Than the US?

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      During the Trump era, America increasingly seems like a motley collection of states brought together for reasons of territorial contiguity and little else. The conservative South is ravaged by a pandemic. The liberal Northeast waits patiently for elections in November to oust a tyrant. A rebellious Pacific Northwest faces off against federal troops sent to “restore order.” The Farm Belt, the Rust Belt and the Sun Belt are like three nations divided by a common language.

      The European Union, on the other hand, really does consist of separate countries: 27 of them. The economic gap between Luxembourg and Latvia is huge, the difference in median household income even larger than that between America’s richest and poorest states (Maryland and West Virginia).

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      European countries have gone to war with each other more recently than the American states (a mere 25 years ago in the case of former Yugoslavia). All EU members are democracies, but the practice of politics varies wildly from perpetually fragmented Italy to stolid Germany to ever-more illiberal Hungary.

      Despite these economic and political differences, the EU recently managed to perform a miracle of consensus. After 90 hours of discussion, EU leaders hammered out a unified approach to rebuilding the region’s post-pandemic economy.

      The EU is looking at an 8.7% economic contraction for 2020. But the coronavirus pandemic clearly hit some parts of the EU worse than others, with Italy and Spain suffering disproportionately. Greece remains heavily indebted from the 2008-09 financial crisis. Most of Eastern Europe has yet to catch up to the rest of the EU. If left to themselves, EU members would recover from the current pandemic at very different rates and several might not recover at all.

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      That’s why the deal is so important. The EU could have helped out its struggling members by extending more loans, which was basically the approach after 2009. This time around, however, the EU is providing almost half of the money in the new recovery fund — $446 billion — in grants, not loans. The $1.3-trillion budget that European leaders negotiated for the next seven years will keep all critical EU programs afloat (like the European structural and investment funds that help bridge the gap between the wealthier and the less wealthy members).

      Sure, there were plenty of disagreements. The “frugal four” of the Netherlands, Denmark, Austria and Sweden argued down the amount of money allocated to the grant program and the budget numbers overall. Germany has often sided with the frugal faction in the past, but this time Chancellor Angela Merkel played a key role in negotiating the compromise. She also managed to bribe Hungary and Poland to support the deal by taking “rule-of-law” conditionality off the table. Both countries have run afoul of the EU by violating various rule-of-law norms with respect to media, judiciary and immigration. Yet both countries will still be able to access billions of dollars from the recovery fund and the overall budget.

      Until recently, the EU seemed to be on the brink of dissolution. The United Kingdom had bailed, Eastern Europe was increasingly authoritarian, the southern tier remained heavily in debt, and the pandemic was accelerating these centrifugal forces. But now it looks as the EU will spin together, not spin apart.

      The United States, on the other hand, looks ever more in disarray. As Lucrezia Reichlin, professor of economics at the London Business School, put it, “Despite being one country, the U.S. is coming out much more fragmented than Europe.”

      The Coming Storm

      The Trump administration has been all about restarting the US economy. President Donald Trump was reluctant to encourage states to lock down in the first place. He supported governors and even armed protesters demanding that states reopen prematurely.

      And now that the pandemic has returned even more dramatically than the first time around, the president is pretending as though the country isn’t registering over 60,000 new infections and over a thousand deaths every day. Trump was willing to cancel the Florida portion of the Republican Party convention for fear of infection, but he has no problem insisting that children hold the equivalent of thousands of mini-conventions when they return to school.

      Europe, which was much more stringent about prioritizing health over the economy, is now pretty much open for business.

      The challenge has been summer tourism. Vacationers hanging out on beaches and in bars are at heightened risk of catching the COVID-19 disease — which is caused by the novel coronavirus — and bringing it home with them. There have been some new outbreaks of the disease in Catalonia, an uptick in cases in Belgium and the Netherlands, and a significant increase in infections in Romania. Belgium is already re-instituting restrictions on social contacts. Sensibly, a number of European governments are setting up testing sites for returning tourists.

      The EU is determined not to repeat what’s going on in Florida, Texas and California. It is responding in a more deliberate and unified way to outbreaks leading to an average of 81 deaths a day than the United States is responding as a whole to a very nearly out-of-control situation producing more than 900 deaths a day.

      The US isn’t just facing a deadly resurgence of the pandemic. Various economic signals indicate that the so-called “V-shaped recovery” — much hyped by the Trump administration — is just not happening. More people are again filing for unemployment benefits. People are reluctant to go back to restaurants and hang out in hotels. The business sector in general is faring poorly.

      “The sugar rush from re-openings has now faded and a resurgence of domestic coronavirus cases, alongside very weak demand, supply chain disruptions, historically low oil prices, and high levels of uncertainty will weigh heavily on business investment,” according to Oren Klachkin, lead US economist at Oxford Economics in New York.

      The Organization of Economic Cooperation and Development (OECD) released a report in July that offered two potential scenarios for the US economy through the end of the year. Neither looks good. The “optimistic scenario” puts the unemployment rate at the end of 2020 at 11.3% (more or less what it is right now) and an overall economic contraction of 7.3%. According to the pessimistic scenario, the unemployment rate would be nearer to 13% and the economic contraction at 8.5%.

      Much depends on what Congress does. The package that Senate Republicans unveiled last week is $2 trillion less than what the Democrats have proposed. It offers more individual stimulus checks, but nothing for states and municipalities and no hazard pay for essential workers.

      Unemployment benefits expired a few weeks ago, and Republicans would only extend them at a much-decreased level. Although Congress will likely renew the eviction moratorium, some landlords are already trying to kick out renters during the gap. The student loan moratorium affecting 40 million Americans runs out at the end of September.

      The only sign of economic resurgence is the stock market, which seems to be running entirely on hope (of a vaccine or a tech-led economic revival). At some point, this irrational exuberance will meet its evil twin, grim reality. On the other side of the Atlantic, the Europeans are preparing the foundation for precisely the V-shaped recovery that the United States, at the moment, can only dream about.

      The Transatlantic Future

      What does a world with a stronger Europe and a weaker America look like? A stronger Europe will no longer have to kowtow to America’s mercurial foreign policy. Take the example of the Iran nuclear deal, which the Obama administration took the lead in negotiating. Trump not only canceled US participation, but he also threatened to sanction any actors that continued to do business with Iran. Europe protested and even set up its own mechanisms to maintain economic ties with Tehran. But it wasn’t enough. Soon enough, however, the United States won’t have the economic muscle to blackmail its allies.

      Embed from Getty Images

      The EU has certainly taken a tougher stance toward China over the last couple years, particularly on economic issues. But in its negotiations with Beijing, the EU has also put far greater emphasis on cooperation around common interests. As such, expect the European Union to take full advantage of the US decline to solidify its position in an East Asian regional economy that recovers far more quickly from the pandemic than pretty much anywhere in the world.

      Europe is also well-positioned to take the lead on climate change issues, which the United States has forfeited in its four years of catastrophic backsliding under Trump. As part of its new climate pact, the EU has pledged to become carbon-neutral by 2050. The European Commission is also considering a radical new idea: a carbon tax on imports. In the future, if you want to be competitive in selling your products in the European market, you’ll have to consider the carbon footprint of your operation.

      Of course, the EU could do better. But compared to the US, Russia or China, it’s way out in front. The European Union is not a demilitarized space. It has a very mixed record on human rights conditionality. And its attitudes toward immigration range from half-welcoming to downright xenophobic.

      But let’s say that Europe emerges from this pandemic with greater global authority, much as the US did after World War II. A lot of Americans, and most American politicians, will bemoan this loss of status. But a world led by a unified Europe would be a significantly better place than one mismanaged by a fragmented United States.

      *[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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      The Latest Version of Russiagate

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      The New York Times keeps slogging away at a four-year-old theme that it refuses to allow to die a natural death. Should we call it Russiagate 2.0 or 3.0 or 7.0? Whatever we call it, Russiagate has made its way back into The NYT’s headlines. Perhaps we should adopt the same convention as the health authorities who called the disease caused by the novel coronavirus COVID-19 because it first appeared in 2019. So, this could be Russiagate-20, although the number of minor versions that have appeared since the beginning of the year might make it Russiagate-20.3.

      The latest article’s title is “Russian Intelligence Agencies Push Disinformation on Pandemic,” followed by the subtitle, “Declassified U.S. intelligence accuses Moscow of pushing propaganda through alternative websites as Russia refines techniques used in 2016.”

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      The logic of the crime perpetrated by the recidivist known as Russia is well-known. The scenario is as familiar as any Hollywood remake. The authors of the article, Julian E. Barnes and David E. Sanger, want to make sure that the new variation on a story about Russian interference with American democracy does not suffer from the criticism leveled at anticlimactic events such as the Mueller report. Some will remember that in August 2019, The Times’ executive editor, Dean Baquet, embarrassingly admitted that the paper was “a little flat-footed” when it doggedly followed an editorial line that consisted of hyping Russiagate on the pretext that it looked “a certain way for two years.” It was the look that kept the story alive even though the narrative contained no substance.

      To make their point about the seriousness of this story, Barnes and Sanger take the trouble to cite, though not to name, “outside experts” who can confirm its reality. “The fake social media accounts and bots used by the Internet Research Agency and other Russia-backed groups to amplify false articles have proved relatively easy to stamp out,” The Times reports. “But it is far more difficult to stop the dissemination of such articles that appear on websites that seem legitimate, according to outside experts.”

      Here is today’s 3D definition:

      Dissemination:

      A synonym for publication that subtly suggests something underhanded, implying that the content of what is being broadcast consists of lies or disinformation

      Contextual Note

      What all these stories boil down to is a pair of simple facts with which readers should now be familiar. The first is the revelation that Russians and, more particularly, Russian intelligence agencies lie, just in case readers weren’t aware of that. The second is that the Russians are clever enough to get at least some of their lies published on the internet.

      For these well-known and oft-repeated “truths” to become newsworthy, the reader must believe something exceptional has occurred, following the man-bites-dog principle. The exceptional fact The Times wants its readers to understand is that, unlike the stories that looked “a certain way” for two years with reference to the 2016 US presidential election, this one is no remake. It is undeniably news because it is about the COVID-19 pandemic, which only became an issue this year.

      Embed from Getty Images

      To the discerning reader, the message is exactly the same as the idea behind the “flat-footed” campaign Baquet mentioned. But the content has changed. In both cases, processing the message requires that readers accept the implicit premise that Russians have a monopoly on lying or, alternatively, that that’s the only thing Russians know how to do. They are the only people on earth who invest in inventing contestable takes on the news and getting their lies published on the internet. There can be no legitimate reason to suspect any other nation, especially the United States, of telling lies about other nations and even managing to get them published on the web. How does The Times know that? Because its anonymous sources hailing from the very reliable US intelligence agencies have dutifully provided it with the data.

      If the story had focused only on COVID-19, it probably would not have justified a full-length article. Understanding this, the journalists sought evidence of Russian interference on “a variety of topics,” including a major one: NATO. “The government’s accusations came as Mandiant Threat Intelligence, part of the FireEye cybersecurity firm, reported that it had detected a parallel influence campaign in Eastern Europe intended to discredit the North Atlantic Treaty Organization,” Barnes and Sanger write.

      How extraordinary, Times readers must be thinking, that Russia might be trying to discredit NATO. That really is news, at least for anyone who has failed to pay attention to everything that has happened in Eastern Europe since the fall of the Berlin Wall in 1991. Do readers of The New York Times belong to that category of the deeply (or simply willfully) ignorant readers of the news? The Times has, after all, published a few articles at least since 1994 alluding to what historians now understand was a persistent act of betrayal by Western powers of the promises made to Russian leaders Mikhail Gorbachev and Boris Yeltsin not to expand NATO… before aggressively doing the contrary over decades.

      In an article in The Nation from 2018, the distinguished Russia expert Stephen Cohen highlighted the role of Western media — and The New York Times, in particular — in failing (or refusing) to cover that ongoing drama. It should surprise no one that even today, The Times not only neglects that vital bit of context, but it also uses its feigned ignorance to express its shock at the idea that the Russians might feel impelled to discredit NATO in Eastern Europe. This is not a case of Russian meddling in US elections. It’s an attempt to limit the damage the Russian government feels has resulted from Western perfidy.

      The latest Times article doesn’t stop there. It offers us this insight: “While the Mandiant report did not specifically name Russia and its intelligence agencies, it noted that the campaign was ‘aligned with Russian security interests’ in an effort to undermine NATO activities.” In other words, the reporters admit there is no direct evidence of Russian involvement. They simply expect Times readers to conclude that because there appears to be an “alignment,” Russia is to blame. This is a perfect encapsulation of everything that took place around Russiagate. Alignment is proof of collusion.

      Historical note

      During the Cold War, Americans were thrilled to find their vocabulary enriched when the word “propaganda,” derived from Latin, was imported from their enemy, the Soviet Union. The term literally means “what is to be propagated.” The Soviets used it as the official term to describe their communications operations modeled on the same logic as the “voice of America.” In both cases, it was all about teaching third parties why their system was better than their opponent’s.

      Americans sneered at the dastardly evil concept of propaganda. They clearly preferred the idea of PR (public relations). This was about the time that Vance Packard’s best-seller, “The Hidden Persuaders,” revealed how — as The New Yorker described it at the time — “manufacturers, fundraisers and politicians are attempting to turn the American mind into a kind of catatonic dough that will buy, give or vote at their command.”

      The monumental effort of Madison Avenue stepping in to dominate a rapidly expanding economy conveniently distracted most people’s attention from the magnificent work the CIA was undertaking across the globe in the scientific (or pseudo-scientific) dissemination of misinformation. The more Americans suspected advertising was lying to them, the less concerned they were by the skullduggery of the military-industrial complex and its intelligence agencies. It clearly went well under their radar as they focused on consumer pleasures.

      That gave the US a double advantage over the Soviet Union. It had two powerful industries working in parallel to feed a regular diet of lies to the American people, whereas the Soviet Union had only the government to supply them with glaringly obvious lies. The Russians were already beginning to receive its messages with growing skepticism. The US enjoyed another advantage to the extent that the fun of advertising and the pleasures of the consumer society took the sting out of their growing awareness that they too were being constantly lied to.

      Can there be any doubt today that The New York Times is committed to propaganda? Like most of the media sympathetic to the Democratic Party, it not only accepts uncritically the “assessments” of the intelligence community, but it also amplifies its messages. It even extrapolates to draw conclusions they dare not affirm.

      If the notion of dissemination has a negative connotation linked to the idea of propaganda, The New York Times is a master disseminator.

      *[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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      Morocco Looks to a Future After COVID-19

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      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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      What Has COVID-19 Done to Small Businesses?

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      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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      in World Politics

      The Real Scandal of Chinese Hacking

      by

      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.

      Embed from Getty Images

      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