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      in US Politics

      US inflation climbed to 8.5% in March, highest rate since 1981

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      US inflation climbed to 8.5% in March, highest rate since 1981War in Ukraine drives up energy costs as figures strengthen expectations Federal Reserve will raise interest rates next month Prices in the US climbed at their highest rates since 1981, rising 8.5% over the year to the end of March as the war in Ukraine drove up energy costs for Americans, the labor department announced on Tuesday.The latest Consumer Price Index (CPI) – which measures the prices of a basket of goods and services – comes after the index rose by 7.9% in the year through February, the fastest pace of annual inflation in 40 years.Driven up by continuing supply chain problems, soaring demand and rising energy prices, inflation is now at levels unseen in the US since Ronald Reagan took the White House from Jimmy Carter.Biden heads to Iowa to unveil plan to reduce gas prices as inflation soars – liveRead moreThe price increases are broad – with the cost of rent, gas and food causing particular hardship for lower income Americans and represent a major blow to the Biden administration, already facing tough odds of retaining control of Congress in November’s midterm elections.Soaring gas prices were the main driver of the rise. The gasoline index rose 18.3% in March and accounted for over half of all the items’ monthly increase. Gas prices have begun to fall, in a sign that some economists have argued may suggest inflation has reached its peak.The food index rose 1% in March compared with February, and is up 8.8% compared with the prior 12 months. Canned fruit and vegetable prices rose 3.8% from February to March, rice prices rose 3.2%, potatoes 3.2% and ground beef 2.1%.Andrew Hunter, senior US economist at Capital Economics, said energy prices would come down in the months ahead and there were signs that price pressures appear to be moderating.But, he added, the figures were likely to strengthen the Federal Reserve’s plan to increase interest rates as it struggles to tamp down inflation.“With Fed officials sounding more hawkish by the day, the March data won’t change their plans to up the pace of rate-hikes to 50 basis points per meeting from next month. Even so, it does support our view that, having been slow to realize that the initial surge wasn’t transitory, Fed officials are now being a bit too pessimistic about how quickly inflation will drop back,” he wrote in a note to investors.The White House warned ahead of the report it was expecting a bad set of figures. On Monday White House press secretary Jen Psaki told reporters that the labor department’s previous report had not included the majority of the jump in oil and gas costs caused by the Kremlin’s invasion of Ukraine.“We expect March CPI headline inflation to be extraordinarily elevated due to Putin’s price hike,” Psaki said.There are two versions of the CPI, one that includes all the prices consumers face and another – core CPI – which excludes food and energy prices, which tend to be more volatile. Core prices climbed 6.5% in the year through March, up from 6.4% in the year through February.The core index did suggest the pace of inflation was slowing, rising 0.3% from February, compared with 0.5% the prior month.Psaki said the administration expected a wide disparity between the two measures because of the soaring price of gas. Nationally the average price of a gallon of gas is now $4.11, compared with $2.86 a year ago, according to AAA.“At times, gas prices were more than one dollar above pre-invasion levels, so that roughly 25% increase in gas prices will drive tomorrow’s inflation reading,” Psaki said.Joe Biden addressed the latest inflation figures at a speech in Des Moines, Iowa, where he announced plans to use more ethanol in US fuel during the summer in an attempt to tackle high gas prices. “I am doing everything in within my executive power to bring down the Putin price hike,” he said. TopicsUS economyInflationEconomicsUS politicsnewsReuse this content More

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      in World Politics

      Making Sense of the Tigray War in Ethiopia

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      FO° Insights is a new feature where our contributors make sense of issues in the news.

      Even as the focus has been on Ukraine, a bloody and brutal conflict has raged in Tigray for 17 months but hardly attracted global attention. On March 25, rebel Tigrayan forces declared that they would respect a ceasefire proposed by Ethiopian Prime Minister Abiy Ahmed as long as sufficient aid was delivered to their war-scarred northern region “within reasonable time.”

      Martin Plaut on the Tigray War, Ethiopia and More

      In this episode, we have the former BBC World Service Africa Editor explain what is going on in the Tigray War in Ethiopia and you can read what he has to say below.

      Embed from Getty Images

      How significant is the humanitarian ceasefire in Ethiopia’s Tigray region?

      This is the first real breakthrough in the negotiating process that we’ve had since the war began in November 2020. There have been terrible bitter months in which there has been a huge loss of life. As per estimates, up to 500,000 people have died either from the conflict or from starvation in Tigray. The whole of Tigray is surrounded by enemies with the Eritreans to the north and the Ethiopians to the south, the east and the west.

      To avoid starvation, it is vital that supplies get through. The Tigrayans need something like a hundred (100) trucks a day. They’ve had 100 trucks in the last, I don’t know, six weeks. There’s starvation in Tigray and humanitarian assistance is desperately needed.

      Why has the ceasefire taken so long?

      Essentially the Ethiopians and the Eritreans who are prosecuting this war have used starvation as a weapon of war. They are trying to crush the Tigrayan population whom they loathe by any means possible. They attempted to invade the country in November 2020 but that didn’t work. The Tigrayans had to flee their capital but, after a few months, they reorganized and they pushed the Eritreans and the Ethiopians right out of most of Tigray.

      There are only some areas on the west and in the far north of Tigray which are still occupied. So the Ethiopians and the Eritreans have basically used starvation as a weapon of war. They’ve cut all communications links, they’ve prevented medical supplies from coming in and they prevented the trucks from rolling in either through the east or through the south. The people are starving.

      Unique Insights from 2,500+ Contributors in 90+ Countries

      How serious is the humanitarian situation?

      The situation is terrible. As always, it is always the very young and the very old who die first. The problem is that we have no absolute certainty about what is going on because the government of Ethiopia and of Eritrea have refused to allow any journalists to the frontlines even on the Ethiopian and Eritrean sides, let alone into Tigray itself. All communications are cut to Tigray, banking services are cut, there’s no way of paying for anything, all fuel supplies going in have been prevented. So Tigray is almost like a sealed-off area and nobody knows really what is going on but we do get to know some things from whispers, and the whispers are terrible.

      Why has this war attracted less attention than Russia’s invasion of Ukraine?

      If you prevent all international journalists from going in, there’s a news vacuum. How do you cover a story when nobody is allowed to be on the ground? Then, you can’t actually get the shots, film the mother with the dying baby or the grandparents unable to feed themselves or look after themselves. You do not get this information we’re getting now, day in, day out, from Ukraine.

      You’re getting nothing from Mekelle, the capital of Tigray, let alone the rest of the area, some of which is very remote. Most monasteries have been looted, women have been routinely raped, I mean literally routinely raped. Some of the testimony was so brutal it is truly some of the worst I have ever seen in my life.

      What is at the stake for Ethiopia and the Horn of Africa?

      Essentially, there are two views of Ethiopia. As per one view, Ethiopia is an imperial country, a single unitary country that was developed in the 19th century and should really essentially return to that. The Tigrayan have another view. They say that we are all ethnic groups, we must all have a federated system in which real power reverts to all of the ethnic areas. That is what the Tigrayans tried to do until 2018 when they lost power. They tried to create this federation sometimes successfully, sometimes unsuccessfully.

      Essentially, those are the two views of how Ethiopia should be run and it’s equally the way in which the whole Horn of Africa should be governed.

      Unique Insights from 2,500+ Contributors in 90+ Countries

      How can Ethiopian Prime Minister Abiy Ahmed resolve this war?

      My view is if he doesn’t really allow an alternative view of the way Ethiopia is run then it is unlikely that we will have a resolution of this conflict. That will mean that we’ll go back to war. We’ve already seen somewhere between 200,000 and 500,000 people killed and that’s before you take in the deaths of the Somalis who fought in this war, of the Eritreans, tens of thousands of whom have been thrown into the frontline, so I mean the death toll could be immense.

      And we don’t want to see any more of this suffering so we really do need some kind of resolution that addresses the political as well as the humanitarian issues.

      This transcript has been lightly edited for clarity.

      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

      Will the Pakistani Prime Minister’s Campaign Slogan Be “Yes, We Khan”?

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      Nikkei Asiadescribes Prime Minister Imran Khan’s initiative that will send voters to the polls as “paving the way for [the] South Asian nation’s first ‘foreign policy election.’” As everything having to do with politics in Pakistan is complex, though perhaps never as complex as it has become today, untangling the threads of this constitutional crisis will not be easy. Nikkei’s characterization of what is likely to follow as a “foreign policy election” is accurate, though whether there will be an election depends on a decision of the Supreme Court.

      Pakistan has perhaps the most complex history of any Asian nation. At this moment of global repositioning accelerated by the Russian invasion of Ukraine, things have become more complicated than ever. This is due to the fact that Pakistan has been part of a geopolitical game involving India, China and Russia while sharing a traditionally porous border with Afghanistan. At the same, this young Muslim nation has the reputation of being consistently aligned with the United States since its creation in 1947. The US was persistently and largely embarrassingly involved in Afghanistan for four decades until President Joe Biden decided to pull out of a two-decade military occupation last summer.

      When the political crisis reached its peak on Sunday and Khan succeeded in avoiding a non-confidence vote, perhaps the most astonishing comment came from Major General Babar Iftikhar, the head of the military’s public relations wing, whodeclared that the “Army has nothing to do with the political process.” This might surprise attentive observers of Pakistani politics who have long understood that the military has always been the force controlling all the nation’s political processes.

      Khan has succeeded thanks to what some call a ruse. He has defined the crux of the current crisis to be Pakistan’s relationship with the United States. It has never been a secret that the nation’s military, as Chief of the Army Staff General Kamar Bajwaexplained last week, shares “a long and excellent strategic relationship with the US which remains our largest export market.”

      Today’s Weekly Devil’s Dictionary definition:

      Strategic relationship:

      A term to describe the level of cooperation, collaboration and respect that exists between two nations, the quality of which can range from a bond of mutually acknowledged equality to the exploitation of a lord over a vassal.

      Contextual note

      Before the actual move to dissolve parliament on Sunday, the BBCprovided its description of the state of political play. “Imran Khan, elected in July 2018 vowing to tackle corruption and fix the economy, remains popular with some voters, even though a lot of his public support has been lost as a result of rocketing inflation and ballooning foreign debt.” Khan was clearly aware of the public’s dissatisfaction with economic trends and may have reasons to fear the results of a general election. But, to his credit, Khan has been more active than previous prime ministers in reining in corruption.

      However, Pakistanis are so inured to corruption, they don’t necessarily see it as a disqualifying criterion. In an earlier article, the BBCquoted a disappointed citizen encountered in a barber shop who had voted for Khan in 2018 but appears ready to favor Khan’s opponents. They are allied with the Bhuttos and Sharifs, two families that have previously dominated Pakistani politics and are reputed to be notoriously corrupt. The BBC interlocutor did not seem to care much about that and said, “They might be corrupt but at least they help poor people.”

      Still, the political stakes may not be just “the economy, stupid.” The BBC cites another customer of the same barber shop. “We have to endure this hard time,” he stoically proclaims. “Imran Khan has taken a stance and we should stand with him.” What may not have been quite as clear at the time of the BBC’s survey of barber shop opinion is that Khan was ready turn the debate into exactly what Nikkei Asia described: “the nation’s first ‘foreign policy election.’”

      If that is the case, it will be interesting to see how Pakistan’s military seeks to influence the outcome of the crisis. The new formulation of the army’s neutrality concerning political processes seems even more surprising when taking into account a defiant remark General Bajwa made in March, when he attempted to push Khan to resign. He justified his activism with these words: “Allah didn’t allow us to be neutral as only animals are neutral.”

      Although Bajwa insisted on the longstanding alliance with the US — highlighting the American market’s importance for the economy as a destination for Pakistani exports —  anotherremark he made helps to explain how Pakistan’s geopolitical positioning may be shifting. “I believe,” he declared, that “the world today is built by those who believe in cooperation, respect and equality, instead of division, war-mongering and dominance.” This raises the interesting question of whom the Pakistanis see as nations focused on “cooperation, respect and equality” and whom they identify as warmongers. Bajwa squarely identified Russia’s incursion into Ukraine as putting it on the evil side of the balance, which contrasts with Khan’s insistence on not taking sides on the Russia-Ukraine conflict.

      Khan has focused on the perception of the US, which he sees as promoting the very “division, war-mongering and dominance” General Bajwa vilifies. The prime minister has made two claims: that he has evidence of a US plot to overthrow his regime and that the Pakistani military has sent him “written threats to step down.”

      Historical note

      Stepping back to situate these events in a broader historical context can help to clarify the issues. Recently talk of a “new world order” has made its way into the headlines. This idea has come from two opposite directions: Xi Jinping’s China and Joe Biden’s America. Xi’s version of a new world order is explicitly multipolar. “The rules set by one or several countries,” Xiproclaimed last year, “should not be imposed on others, and the unilateralism of individual countries should not give the whole world a rhythm.”

      Biden’sversion sounds not only different from Xi’s, as we might expect, but is paradoxically identical with what most people recognize as the old world order. “Now is a time when things are shifting,” Biden declared a week ago. “We’re going to – there’s going to be a new world order out there, and we’ve got to lead it. And we’ve got to unite the rest of the free world in doing it.” Anyone with a sense of historical reality may find it difficult to see any deep semantic difference between Xi’s evocation of imposing rules on others and Biden’s idea that “we’ve got to lead it.” The “unilateralism” Xi disparages appears to be precisely what Biden’s champions by insisting that “we’ve got to lead it.”

      In January, The Financial Times summed up theconclusion reached by Xi and Putin in the definition of their newly solidified partnership, noting that “the Russian and Chinese leaders are united by a belief that the US is plotting to undermine and overthrow their governments.” That is the message Khan has put forward and which will likely dominate the eventual election campaign that will follow the dissolution of parliament. More significantly, the increasingly obvious US strategy that consists of avoiding or undermining peace talks between Ukraine and Russia makes it look as if the US is focused on two basic objectives: undermining every government in the world that doesn’t fall into line and turning NATO into the superstructure of a unilateral empire controlled financially and militarily from Washington.

      Instead of a new world order, if that is the strategy of the US, it is little more than a reinforced version of the old world order, more military than ever. The major obstacle, however, is that a traditional ally such as Pakistan or a more recent one like India, who though opposed amongst themselves, can no longer be counted on to toe the line.

      Khan is probably right about a US-led effort at regime change. That seems to be the first reflex of any US president’s foreign policy. It has rarely, if ever worked, but at the core of US culture is the resolution to always “try again.” A lot of ordinary people around the world have become aware of the futility of that pattern. The political elites are only just beginning to feel the pressure to change this worn out pattern.

      What that means is that we are witnessing essentially a new world disorder. What follows is anyone’s guess.

      *[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. Read more of The Fair Observer Devil’s Dictionary.]

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

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      in US Politics

      ‘I know how much it hurts’: Biden to release US oil in bid to lower gas prices – as it happened

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      Key events

      Show

      4.21pm EDT

      16:21

      Closing summary

      4.17pm EDT

      16:17

      ‘Incontrovertible evidence that this [war] has been a strategic disaster for Russia’ – White House

      3.15pm EDT

      15:15

      Biden: Putin may be in ‘self-isolation’

      2.48pm EDT

      14:48

      Romney: $10bn ‘agreement in principle’ over Covid relief

      1.56pm EDT

      13:56

      Biden confirms draw on oil reserves to lower gas prices

      11.44am EDT

      11:44

      Pelosi wants inquiry on Russia’s ‘crimes against children’

      9.33am EDT

      09:33

      Oil prices plunge as Biden mulls 180m barrel release

      Live feed

      Show

      Show key events only

      From

      1.56pm EDT

      13:56

      Biden confirms draw on oil reserves to lower gas prices

      Joe Biden says his plan to release 1m barrels daily from the US strategic oil reserves will: “Ease the pain families are feeling right now, end this era of dependence and uncertainty and lay a new and new foundation for true and lasting American energy independence.”
      The president is speaking live at the White House to announce the move, which he said would last up to six months and which will represent the largest ever draw ever on the country’s emergency supplies.
      “I know how much it hurts,” he said of rising gas prices that have followed the decision by the Russian president Vladimir Putin to invade Ukraine.
      “Putin’s price hike is hitting Americans at the pump.” More

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      in World Politics

      The Risk Posed by Global Inflation

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      Since the reopening of national economies after COVID-19 lockdowns, inflation has been rising around the world. This change in the macroeconomic environment caught policymakers off guard in terms of adapting inflation forecasting models and assessing the causes of this evolution. As a result, old debates have resurfaced about the risks and opportunities of inflation and how best to restore price stability.

      Despite the rapid surge, inflation was not totally unexpected since it is partially attributable to measures taken to reopen national economies, resulting in increased demand and disruptions of supply chains and production, says Archana Sinha, the head of the Department of Women’s Studies at the Indian Social Institute. In this sense, the current inflationary environment differs from the one in the late 1970s and may prove only transitory.

      COVID-19 Policies Carry Implications for South Korea’s Presidential Election

      READ MORE

      There are, however, other drivers of inflation that may prove more long-lasting. This includes, as Domingo Sugranyes of the Pablo VI Foundation points out, decarbonization and economic concentration, allowing excessive pricing power. Additional factors are rising property and stock prices, as well as the increase of raw material prices, Etienne Perrot explains.

      As a result, as Valerio Bruno mentions, central banks’ instruments, such as raising interest rates, may not suffice to reverse current inflationary pressures. Bruno, a researcher, says that we can “expect a long period of high inflation.” That being said, it is far from certain that central banks are willing to use these instruments because of their concern with financial stability that a selloff on financial markets may jeopardize.

      Embed from Getty Images

      From a socioeconomic perspective, Andrew Cornford recalls that inflation is not a “uniform problem” since its effects vary among countries, sectors and groups. The main problem, Bruno points out, is that “the wages of workers, in particular the middle class, suffer greatly from a declining purchasing power. If wages are not adjusted to inflation, consumptions and companies’ profits are affected, leading to a possible economic recession.”

      On the other hand, inflation may benefit debtors by depreciating their debts. However, Cedric Tille, a professor in macroeconomics, warns that “any persistent inflation will raise the cost of additional borrowing” in the future and therefore “any gain from inflation for some actors is likely to be temporary.” For instance, Sugranyes says, “many weaker debtors will find growing difficulty in refinancing at higher interest rates.”

      The current rise of inflation pressure may prove to be only temporary — not inflation in the pure sense — but it has to be taken seriously because it could dash hopes of economic recovery and weigh on the morale of populations exhausted by waves of social restrictions.

      By Virgile Perret and Paul Dembinski

      Note: From Virus to Vitamin invites experts to comment on issues relevant to finance and the economy in relation to society, ethics and the environment. Below, you will find views from a variety of perspectives, practical experiences and academic disciplines. The topic of this discussion is: What are the main threats, but also possibly the main opportunities, related to inflation?

      “… inflation is not new … ”

      “Inflation is not new; it was hidden behind rising property and stock prices, leading to properties disparities. As international competition has diminished, the rise in energy and raw material prices has a direct impact on consumer goods. Its social effects (on pensioners and various marginal groups), as well as its economic consequences for long-term investments (distortions) and interest rates (rise), must be taken into account. On the other hand, inflation favors, for a time, companies, indebted households and massively borrowing states. Debtors become more credible in financing the investments needed for the ecological transition”

      Etienne Perrot — Jesuit, economist and editorial board member of the Choisir magazine (Geneva) and adviser to the journal Etudes (Paris)

      “… any gain from inflation for some actors is likely to be temporary … ”

      “While inflation has a short-run benefit for debtors, one must bear in mind that these debtors will borrow additional amounts in the future. Any persistent inflation will raise the cost of these additional borrowing, including a term premium. Therefore, any gain from inflation for some actors is likely to be temporary. Looking through the inflation movements of the coming months, which hopefully will prove temporary, the reasons underpinning central banks’ mandates of symmetric price stability remain as valid as they have ever been.”

      Cedric Tille ­— professor of macroeconomics at the Graduate Institute of International and Development Studies in Geneva

      “… inflation does not entail any real benefit …”

      “Inflation does not entail any real benefit for most governments and businesses. Although debts may be depreciated in the long term, many weaker debtors will find growing difficulty in refinancing at higher interest rates and will see financial flows fleeing toward ‘safer’ harbors. There are objective reasons for cost increase, like decarbonization or restructuring of supply chains, which should lead us to admit that we are slightly poorer than we thought. Concentration also may allow business excessive pricing power. The vicious circle of inflation is an illusionary way of denying these facts, leading to even worse impoverishment. Some governments may be tempted to print money, [but] there will be growing pressure for automatic indexation of salaries and pensions. Difficult challenges!”

      Domingo Sugranyes — director of a seminar on ethics and technology at Pablo VI Foundation, former executive vice-chairman of MAPFRE international insurance group

      “… policy responses must address distributional dimensions … ”

      “Inflation is not a uniform problem. It varies among countries (high, middle and low-income), among income groups within countries, among goods and thus producing sectors (e.g., energy and primary commodities used for food), and amongst services (e.g., health-related, finance and travel). As is generally acknowledged, policy responses — both national and those involving international finance and aid — must address distributional dimensions, avoiding links to austerity and other attached conditions likely to increase poverty. In developed countries, policy design will frequently be handicapped by a lack of pertinent data, especially regarding wealth in the form of financial assets and tax liabilities. An option here would be a once-and-for-all capital levy high enough to help a government to deal with immediate increases in its financial liabilities, while leaving permanent solutions to the problem of enormous inequalities of wealth to be attained as part of a future response to longer-term needs and objectives.”

      Andrew Cornford — counselor at Observatoire de la Finance, former staff member of the United Nations Conference on Trade and Development (UNCTAD), with special responsibility for financial regulation and international trade in financial services

      Unique Insights from 2,500+ Contributors in 90+ Countries

      “… the risks of inflation far outweigh the possible benefits … ”

      “It seems to me that the risks of inflation far outweigh the possible benefits. To make effective use of the tools available to central banks, it would be necessary to understand the real causes of inflation (a ‘drugged’ financial economy, monopolies and oligopolies, or the costs of raw materials). Unfortunately, central banks’ instruments, such as raising interest rates, are not always sufficient to reverse this trend. We can therefore expect a long period of high inflation, with ‘classic’ safe-haven assets as gold reaching historic highs. The main problem with inflation is that the wages of workers, in particular the middle class, suffer greatly from a declining purchasing power. If wages are not adjusted to inflation, consumptions and companies’ profits companies are affected, leading to a possible economic recession.”

      Valerio Bruno — researcher in politics

      “… inflation at these levels is a cause for concern …”

      “Labor market conditions are improving but tempestuous, and the pandemic continues to threaten life and economic activity. The rapid reopening of the economy has brought a sharp advance in inflation. These are challenging times for the public. The dynamics of inflation are complex, and inflation can be assessed from a number of diverse perspectives, including the absence of inflation pressures; moderating inflation in high inflation items; wages; and long-term inflation expectations. Businesses and consumers widely report upward pressure on prices and wages. Inflation at these levels is a cause for concern. This assessment is a critical and ongoing one as we continue to monitor inflation data against each of these perspectives.

      Archana Sinha — head of the Department of Women’s Studies at the Indian Social Institute in New Delhi, India

      *[An earlier version of this article was published by From Virus to Vitamin.

      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

      Rowing Together to Tackle Inequality

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      Beyond the health consequences of the pandemic, evidence shows that the COVID-19 crisis may result in increasing the levels of poverty and inequality for years, if not generations. This outcome is not inevitable. However, insufficient responses to the crisis have deepened inequalities both between and within countries and intensified public discontent, paving the way to “social turmoil and unrest,” says research Bruno Valerio.

      COVID Failure: A Matter of Principle

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      The costs of the pandemic are being borne disproportionately by poorer categories of society since low-income households are more exposed to health risks and more likely to experience job losses and sharp declines in wellbeing. At the same time, the pandemic has been a boon for the wealthy. In response to the economic collapse in March and April 2020, central banks injected enormous amounts of liquidity into financial markets, keeping asset prices high while economic activity slowed down. Some of the biggest winners were those with high stakes in the technology sector.

      Against this background, Kara Tan Bhala, the founder of the Seven Pillars Institute for Global Finance and Ethics, suggests using the Gini coefficient as a measure of how close a country or the world is to economic upheaval. “The Gini coefficient gauges the income inequality of a region, where 0 corresponds with perfect equality and 1 corresponds with perfect inequality,” she says. “Perhaps nations begin seriously reforming economic policies when their Gini coefficients are above 0.4 (United States) and red lights start flashing trouble when a country scores above 0.5 (South Africa, Brazil).”

      But how do we tackle inequality? According to economist Etienne Perrot, “the adequate responses must … address both property [ownership] rights through anti-trust regulations to counter the abuse of a dominant position, policies through redistributive taxes and education so as not to confuse emulation and competition.” Other policy responses may include “reforms of the transparency and other features of firm governance, broader acceptance of countries’ right to control cross-border capital movements,” as Andrew Cornford points out.

      Embed from Getty Images

      To implement these policies, the first condition is that inequalities should be on the political agenda, which is not the case everywhere, as professor Yuriy Temirov illustrates with the case of Ukraine. But policy measures alone are not sufficient to reduce inequalities. They have to be complemented by a cultural, transformative process for learning to “row together” (Fratelli tutti), as Domingo Sugranyes of the Pablo VI Foundation says, to increase our socioeconomic resilience.

      By Virgile Perret and Paul Dembinski

      Note: From Virus to Vitamin invites experts to comment on issues relevant to finance and the economy in relation to society, ethics and the environment. Below, you will find views from a variety of perspectives, practical experiences and academic disciplines. The topic of this discussion is: Inequalities seem to accelerate in every part of the world due to COVID-19 and other issues. Unlike the climate debate, in social issues, we do not have a proper threshold for catastrophe. This leads to a possible overestimation of social resilience and leaves the issue as such largely untackled. Drawing on the particularities of your region or on your area of expertise, what should/can be done?

      “… perfectly predictable socioeconomic inequalities … ”

      “The pandemic only reveals perfectly predictable socioeconomic inequalities. Pope Francis had alerted the international community as soon as the first vaccines appeared. The causes of these glaring social inequalities mix the institutional side through the right of property, the politics increasingly tempted by nationalism, and the spiritual bathed in the materialistic individualism of modernity. The adequate responses must therefore address both property right through anti-trust regulations to counter the abuse of a dominant position, policies through redistributive taxes and education so as not to confuse emulation and competition, distinguishing between the elite and the financial success.”

      Etienne Perrot — Jesuit, economist and editorial board member of the Choisir magazine (Geneva) and adviser to the journal Etudes (Paris)

      “… the Gini coefficient as a measure of how close a country is to economic upheaval… ”

      “In the global climate crisis, anything over 2°C above the average pre-industrial temperature leads to unmitigated disaster. In a similar vein, I suggest we use the Gini coefficient as a measure of how close a country or the world is to economic upheaval. The Gini coefficient gauges the income inequality of a region, where 0 corresponds with perfect equality and 1 corresponds with perfect inequality. Perhaps nations begin seriously reforming economic policies when their Gini coefficients are above 0.4 (United States) and red lights start flashing trouble when a country scores above 0.5 (South Africa, Brazil). Of course, these watershed levels need further research, but it would be enlightening to have an idea of the income inequality thresholds of social disaster.”

      Kara Tan Bhala —president and founder of the Seven Pillars Institute for Global Finance and Ethics

      “… public support will be essential to act to avert a total catastrophe … ”

      “Despite its importance, GDP as an indicator should no longer be the only way we measure economic success. Fairer economy would mean tackling health inequalities and getting to grips with issues that prevent individuals from certain ethnic or socioeconomic backgrounds meeting their full potential. We need to embrace means of improving wellbeing and advancing social mobility, build on promoting social inclusion as well as addressing poverty. New plans must be put in place to achieve a more sustainable economy in a more equal and socially just society, and this cannot just be an aspiration — it must be seen as critical to our survival. In recognizing the profound challenges, public support will be essential to act to avert a total catastrophe. The coronavirus is still alive, and risk lies in whether this will be possible.”

      Archana Sinha — head of the Department of Women’s Studies at the Indian Social Institute in New Delhi, India

      Unique Insights from 2,500+ Contributors in 90+ Countries

      “… rowing together (Fratelli tutti) …”

      “I don’t see a theoretical answer to this extremely vast question. My reaction can only be in terms of (modest) action-oriented commitment: ‘rowing together’ (Fratelli tutti), i.e., trying to identify social projects of high solidarity value, which help people to emerge from poverty on their own capabilities, and look for means — money, goods, time — in order to increase the scope and impact of such communities. We need business and people in business to get much more decidedly involved in these kinds of projects. This is, among many other organizations, what we try to do with The Voluntary Solidarity Fund (VSF International) and VSF Spain. Everybody is welcome to join.”

      Domingo Sugranyes — director of a seminar on ethics and technology at Pablo VI Foundation, former executive vice-chairman of MAPFRE international insurance group

      “… an effective wealth tax and a global minimum corporate tax … ”

      “With the COVID-19 pandemic, the gap between the rich and the poor, in particular the income gap, has increased as Pope Francis, among others, has stated on several occasions. It is undeniable that the trend had already started several decades ago. However, with COVID-19, inequalities have reached record levels that do necessitate strong internal reforms. If no actions will be taken, such as an effective wealth tax and a global minimum corporate tax, the possibility of social turmoil and unrest will be inevitable. In Italy, political parties are literally unable to agree and set the slightest kind of agenda for a proper patrimoniale (wealth tax or asset tax), preferring to keep the country in an extremely dangerous status quo.”

      Valerio Bruno —researcher in politics

      “… fiscal measures, transparency, control of cross-border capital movements … ”

      “Much attention has been given to the wealth as well as the income dimension of the inequalities — the associated rents of the minority at one end, and the much lower and often stagnating incomes of the remainder. The latter comprises not only the working class, but also parts of the middle class. Much commentary has also concerned the opportunities to hide wealth — and thus reduce tax exposure — provided by cross-border financial liberalization and offshore financial centers. Policy responses to the inequalities should include fiscal measures, including improved taxation of the wealth of individuals and firms, reforms of the transparency and other features of firm governance, broader acceptance of countries’ right to control cross-border capital movements, and changes in legal definitions designed to facilitate controls over firms’ domestic and cross-border access to different economic activities and industries and thus to restrict regulatory arbitrage and opaqueness in firms’ operations.”

      Andrew Cornford — counselor at Observatoire de la Finance, former staff member of the United Nations Conference on Trade and Development (UNCTAD), with special responsibility for financial regulation and international trade in financial services

      “… imaginative countermeasures of income … ”

      “The fundamental dynamic of any economy is summed up in the dictum, ‘To those who have shall be given and they shall have more than they can use, and from those who have not shall be taken even what they have.’ COVID also has set it in motion. Where the effects are beneficial — e.g., the reduction in travel by air — it should be encouraged. Further good news is that the deprivation inflicted by COVID on the deprived has been met — at least in places like Geneva — not by the usual blame, scorn and exclusion, but by imaginative countermeasures of income support and new forms of communication like Zoom.”

      Edouard Dommen — specialist in economic ethics, former university professor and researcher at the UNCTAD and president of Geneva’s Ecumenical Workshop in Theology.

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      “… first we have to think about youth … ”

      “The social deprivation problems are persistent, and this fact routinizes somehow their existence and hinders the definition of a social resilience threshold. Differentiated priorities emerged in South/Eastern Europe after the successive waves of crisis, but first we have to think about youth since no country can sustain without giving hope to its members through a micro/macro strategy that includes: i) an immediate recovery plan with emergency income support for the vulnerable groups; ii) long-lasting work-related policies and investments on youth employment (work-based training, tax reliefs for innovative enterprises); iii) strategies of sharing the risks with interregional cooperation and job retention schemes; and iv) protection and support of childhood integrity (tackling invisible work and poverty with financial benefits for low-income families and proper child/health-care, along with future-centered support, such as home learning environment and early schooling interventions).”

      Christos Tsironis —associate professor of social theory at the Aristotle University of Thessaloniki

      “… in Ukraine, social inequality will not become a priority soon … ”

      “In Ukraine, social inequality has two primary sources: the legacy of the ‘socialist’ totalitarian past and deformed oligarchic capitalism. At the same time, the initial period of transformation with the exacerbation of the problems of social inequality has dragged on dangerously. From 1991 to 2014, the domination of the interests of oligarchic groups over national interests acted as a brake on reforms. After the Revolution of Dignity, there was a political will to implement unpopular reforms, but they had to be carried out in conditions of the population’s fatigue from reforms, in the realities of Russian aggression. The promotion of reforms by servants of the people is complicated by populism. In Ukraine, social inequality will not become a priority soon. At this stage of transformation, this issue cannot be a priority; the authorities do not have a correct understanding of the hierarchy of priorities, and society’s perceptions of equality/inequality are distorted by collectivism and paternalism.

      Yuriy Temirov —associate professor, dean of the Faculty of History and International Relations at Vasyl Stus Donetsk National University

      *[An earlier version of this article was published by From Virus to Vitamin before the Ukraine War began.]

      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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      Industrialization and Innovation Could Make the Indian Economy Takeoff

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      Labor-intensive manufacturing has historically been the best-known recipe for driving economy-wide productivity enhancement. Over time, several countries, notably those in East Asia, managed to move unskilled workers from farms in rural areas to factories in urban settings. This transition increased both individual incomes and national GDPs, ultimately boosting productivity.

      Not all countries have taken to manufacturing, though. Some of them have experienced premature deindustrialization, which economist Dani Rodrik has analyzed extensively. India’s manufacturing sector never reached full potential because of this phenomenon.

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      Instead, India ended up with the “premature servicization” of its economy. This diminished its capacity to create enough well-paying jobs for its large population and did not allow for increased productivity.

      India’s Drive to Industrialization and Innovation

      Services now comprise more than half of India’s GDP. As alluded to above, services do not deliver productivity growth in the same way as industry. Those who argue for free trade believe this does not matter. India can import industrial goods like cars and cellphones while exporting software writing and call center services.

      Such arguments for a trade-based economy fail to recognize, or in many cases deliberately omit, increasing trade deficits when a country has poor manufacturing. In a volatile and uncertain world, these deficits can become a geopolitical liability for any nation because manufacturers can shut off access to the most basic of goods. Manufacturing does not only increase productivity and enhance security, but it also creates jobs and lowers inequality. For these reasons, India has recently embarked on a reindustrialization program. 

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      The new Production Linked Incentives (PLIs) seek to attract the more reputed global manufacturers, the best brains in industry and high-quality, long-term investments to India. Under PLIs, participants can manufacture for the domestic and/or export markets. The government applied these incentives to 14 sectors, of which telecoms, cellphones, electronic equipment and automobiles are benefiting already.

      Many manufacturers station their Global Capability Centers (GCCs) in India, which has become a global base for services operations. A June 2021 report by Deloitte and NASSCOM states that 1,300 GCCs employed more than 1.3 million professionals and generated $33.8 billion in annual revenues in the financial year starting April 1, 2020, and ending March 31, 2021. Another report estimates that GCCs are likely to grow by 6-7% per year and rise to over 1,900 by 2025. It also says that these GCCs are evolving from back-office destinations to global hubs of innovation.

      Digitization is aiding this transformation of GCCs. Now, industrial design is no longer a monopoly of a headquarters in Michigan or Munich. Thanks to fast-speed internet and powerful computers, research, design and development of new machines, goods and consumption articles can take place anywhere in the world. Software is playing an increasingly bigger role in creating new hardware, driving additive manufacturing and automating factories. A process of disintermediation of manufacturing is under full swing, leading to what can be called a “servicization of manufacturing.”

      This trend gives India a unique opportunity. Global businesses need rapid, at-scale and cost-effective innovation. With its cost advantages and services ecosystem, India can provide that innovation to the world. Conventionally, innovation is associated with creating something new such as an iPhone or a Tesla. However, innovation occurs in less flamboyant ways as well. Any change in design or development that creates new value for the firm or provides an operational competitive advantage is an innovation too.

      A Unique Opportunity to Takeoff

      Global companies aiming to operate faster, cheaper and better are increasingly operating in India. The country has become more innovative over the years. India granted 28,391 patents in the financial year 2020-21, up from 9,847 in 2016-17 and 7,509 in 2010-11. Last year, the press reported that India registered as many trademarks in the past four years as in the previous 75. India’s rank on the global innovation index has moved up from 81 in 2015 to 46 in 2021. The World Intellectual Property Organization also recognized India as the second most innovative low and middle-income economy after Vietnam.

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      India missed out on the first and second industrial revolutions. The first one took place in Europe between the mid-18th and mid-19th centuries when India was fragmented and undergoing colonization by the British East India Company. The Second Industrial Revolution occurred in the 20th century, but India was ruled by the British government directly, which had no interest in industrialization. London’s incentive was to use India as a provider of raw materials and as a captive market for finished British industrial goods.

      After independence in 1947, India failed to industrialize unlike its East Asian counterparts. It chose a Soviet-style planned economy that was closed and protectionist. Only in 1991 when the Soviet Union collapsed did India embrace market reforms and liberalized its economy.

      Today, India is growing at 9% and its GDP is about to touch the $3-trillion mark. With strong global tailwinds, India can embrace industrialization and innovation, and finally enter what American economist Walt Rostow has termed the takeoff stage of economic growth.

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      The Iberian Solution Could Offer Europe More Gas

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      Never has the question of where Europe’s foreign gas supplies come from, and whether there are alternatives to the continent’s dependence on Russia, been so much debated as in recent weeks. A subject that is usually the preserve of specialists has become the focus of endless discussion. Are there other sources of gas supplies for the European Union?

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      The immediate answer is there are very few today outside of Russia itself, hence the large rise in gas prices witnessed lately. Over the medium term, however, Libya and Algeria have ample opportunity to increase their supplies to the EU.

      Supplies From Libya and Algeria

      Libya boasts proven gas reserves of 1,500 billion cubic meters (bcm). Its production is a modest 16 bcm. Algeria has 4,500 bcm of proven reserves and 20-25 trillion cubic meters (tcm) of unconventional gas reserves, the third-largest in the world after the United States and China (and Argentina whose proven reserves tie with Algeria). How much gas that could produce is anyone’s guess, but we are speaking of a figure in the tens of bcm.

      Algeria today produces 90 bcm, of which 50 bcm were exported. Another feature of Algeria is the huge storage capacity — 60 bcm — of the Hassi R’Mel gas field, its oldest and largest compared with the EU’s storage capacity of 115 bcm.

      Pierre Terzian, the founder of the French energy think-tank Petrostrategies, points out that four underwater gas pipelines link these two producers directly to the European mainland: the first links Libyan gas fields with Italy; the second Algerian gas fields to Italy via Tunisia; the third Algerian gas fields to southern Spain; and the fourth the same gas fields to southern Spain via Morocco.

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      The latter has been closed since November 1, 2021, due to deteriorating relations between Algeria and Morocco, but this has not affected the supply of gas to the Iberian Peninsula. Algeria also has two major liquified natural gas (LNG) terminals, which adds flexibility to its export policy. Its exports to France and the United Kingdom are in LNG ships.

      The leading cause of the current crisis is structural as, according to Terzian, EU domestic gas production has declined by 23% over the last 10 years and now covers only 42% of consumption, as compared with 53% in 2010. That decline is the result, in particular, of the closing of the giant Groningen gas field, which is well underway and will be completed by 2030.

      Europe has done a lot to expand the gas transmission grid among EU countries, but some major gas peninsulas remain. In 2018, it was suggested that connections between the Iberian Peninsula and the rest of Europe needed developing. Spain boasts one-third of Europe’s LNG import capacity, much of it unused, and is connected to Algeria by two major pipelines that could be extended.

      As Alan Riley and I noted four years ago, the “main barrier to opening up the Iberian energy market’s supply routes to the rest of the EU is the restricted route over the Franco-Spanish border. Only one 7-bcm gas line is available to carry gas northwards … The main blocking factor has been the political power of Electricité de France, which is seeking to protect the interests of the French nuclear industry.” An Iberian solution, we added, would not only “benefit France and Spain, but also Algeria, creating additional incentives to explore for new gas fields and maybe kick start a domestic renewables revolution,” which would encourage a switch in consumption from gas to solar in Algeria.

      Germany, the Netherlands and Italy

      Germany, for its part, has never put its money where its mouth is with regard to Algeria. In 1978, Ruhrgas (now absorbed in E.ON) signed a major contract to supply LNG to Germany. Germany never built the LNG terminal needed to get that contract off the ground. So far, it is the only major European country to have no LNG import terminals, although it can rely on existing facilities in the Netherlands and Belgium.

      In 1978, the Netherlands also contracted to buy Algerian gas. Algeria dropped the contract in the early 1980s because of Germany’s refusal to go ahead. Later in the 1980s, Ruhrgas again expressed its interest in buying Algerian gas, but the price offered was too low and because Ruhrgas wanted to root the gas through France, which insisted on very high transit fees. By discarding Algerian gas, Germany has tied itself to Russian goodwill.

      Italy, like Germany, a big importer of Russian gas, has positioned itself much more adroitly. In December 2021, Sonatrach, Algeria’s state oil and gas monopoly, increased the amount of gas pumped through the TransMed pipeline, which links Algeria to Italy via Tunisia and the Strait of Sicily at the request of its Italian customers. This followed a very successful state visit by Italian President Sergio Mattarella to Algeria in early November. On February 27, Sonatrach confirmed it could pump additional gas to Europe, but contingent on meeting current contractual commitments.

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      Relations between the Italian energy company ENI and Sonatrach are historically close because of the important role played by the Italian company’s founder, Enrico Mattei, in advising the provisional government of the Republic of Algeria in its negotiations with France, which resulted in the independence of Algeria in July 1962.

      The pursuit of very liberal energy policies since the turn of the century by the European Commission overturned the policies of long-term gas and LNG purchase contracts, which were the norm in internationally traded gas until then. Yet security of supply does not rest on such misguided liberalism. New gas reserves cannot be found, let alone gas fields brought into production if producers and European customers are, as Terzian points out, “at the mercy of prices determined by exchange platforms which have dubious liquidity (and can be influenced by major players).” This is an attitude, he adds, “that borders on the irresponsible.”

      German energy policy has mightily contributed to the present crisis. It has blithely continued to shut down the country’s nuclear plants, increased its reliance on coal in the electricity sector and with that a consequent increase in carbon emissions.

      Serious Dialogue

      When considering Caspian gas as an alternative to Russian gas, I would add another country, Turkey, which has a very aggressive and independent policy as a key transit for gas. However, few observers would argue that such a solution would increase Europe’s security.

      Engaging in serious long-term strategic dialogue with Algeria would provide Spain and the EU with leverage. This could help to build better relations between Algeria, Morocco and also the troubled area of the Sahel. When trying to understand the politics of different nations, following the money often offers a good guide. One might also follow the gas.

      *[This article was originally published by Arab Digest, a partner organization of Fair Observer.]

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