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    Surprised that Ivanka was almost head of the World Bank? You shouldn’t be | Arwa Mahdawi

    OpinionIvanka TrumpSurprised that Ivanka Trump was almost head of the World Bank? You shouldn’t beArwa MahdawiDonald Trump wanting his daughter to have the top job at the World Bank is no great surprise. What intrigues me is the thought of Steven Mnuchin blocking it Tue 12 Oct 2021 11.34 EDTLast modified on Tue 12 Oct 2021 14.01 EDTIt’s no secret that Donald Trump has something of a soft spot for his eldest daughter, Ivanka. He’s constantly tooting her horn and gushing over her talents. Not only does Ivanka have a “very nice figure”, Trump has boasted, but “she’s very good with numbers”. She’s so good at all that numbers stuff that the former president even considered her for the top job at the World Bank in 2019. And that wasn’t just a fleeting fantasy, either; according to a recent report by the Intercept, Ivanka’s nomination for World Bank president “came incredibly close to happening”. The reason it didn’t is that Trump’s treasury secretary, Steven Mnuchin, intervened. Which, by the way is a rather different story from the one Ivanka tells. The former first daughter has said she passed on the job because she was very happy with the high-powered White House position she’d appointed herself to.I can’t say I’m surprised that Ivanka was a stone’s throw away from a(nother) prestigious job she was laughably unqualified for. What does intrigue me is why Mnuchin might have blocked her nomination. Trump has a knack of surrounding himself with sycophants who do his bidding; what could have prompted Mnuchin to break ranks? Could it possibly be that the guy finds brazen nepotism distasteful? Alas, it seems unlikely, considering he’s a product of it himself. Mnuchin’s first job out of Yale was at Goldman Sachs, where his dad just happened to be a general partner. According to a New York magazine profile, Mnuchin’s colleagues at Goldman Sachs didn’t consider him “especially book smart”, but that didn’t stop him becoming partner himself. The same profile notes that his elevation to partner came at the expense of an African American trader from a working-class background who struck one colleague as being “much smarter than Steven” and having “accomplished a lot more”. I don’t know how fair that profile is, but I’d bet both my kidneys that Mnuchin isn’t someone who stays awake at night fretting about nepotism.So perhaps Mnuchin was afraid Ivanka’s appointment might be unethical or make the US look ridiculous? Again, these theories seem unlikely. Mnuchin and his (third) wife, the Scottish actor Louise Linton, don’t seem particularly bothered by ethics or looking ridiculous. Mnuchin, after all, is nicknamed the “foreclosure king” because he made a ton of money evicting elderly people from their homes. Linton, meanwhile, is notorious for having written a “white saviour” memoir full of dubious claims. The pair haven’t exactly kept a low profile since getting together. Remember when the lovebirds did a very weird supervillain-style photoshoot with a sheet of new dollar bills? Not exactly something someone concerned about optics might do. Then there was the time they took a government plane to see a solar eclipse in Kentucky. Linton posted the trip on Instagram and hashtagged all the designer labels she was wearing: “#rolandmouret pants”, “#tomford sunnies”, “#hermesscarf”, “#valentinorockstudheels”. The whole thing was #inverybadtaste.The pair haven’t exactly tried to tone it down since then. Linton recently made a movie called Me You Madness where she plays a “materialistic, narcissistic, self-absorbed misanthrope” who hates commercial air travel, loves high fashion and eats men for fun. It also contains spider sex. Mnuchin has been very supportive of the movie, calling the escapades of a greedy sociopath “highly entertaining”. Again, he doesn’t seem like the sort of guy who cares what other people think. Rather, he seems like the sort of guy who actively supports narcissistic blonds (Linton looks quite a bit like Ivanka) with white saviour complexes and enormous egos doing whatever the hell they like. If he blocked Ivanka’s nomination then I’ll once again wager my kidneys that it wasn’t for the common good, but it was somehow for his own good. After all, nepotism simply isn’t a problem for people like Mnuchin. It’s just the way the world works.
    Arwa Mahdawi is a Guardian columnist
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    Liberalizing India’s Economy Is Critical for Global Stability

    The COVID-19 pandemic is increasing inequality globally and even advanced economies have not been spared. Before the pandemic began in 2020, inequality was on the rise. Decades of globalization, loose monetary policy and the rise of oligopolies have contributed to this phenomenon. In many ways, globalization has kept inflation down. When Walmart imports Chinese goods, Americans get more for less.

    China can manufacture cheaply because labor costs are low. The Chinese Communist Party (CCP) also runs an authoritarian regime. The regime has repressive land and labor laws with scant regard for human rights. Legally, the CCP owns all the land in China and can appropriate any property it wants. Similarly, workers have little recourse to courts and sometimes work in slave-like conditions.

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    A rising China is challenging the postwar global order. Democracies, including the United States, are finding it difficult to meet the challenge for two reasons. First, loose monetary policies in recent years have brought back the specter of inflation. Second, no economy other than China’s can meet the supply needs of advanced economies. From laptops to toys, most goods are made in China.

    Labor arbitrage has defined globalization from its early years. Companies set up factories where wages tend to be lower. This increases revenues and profits, making consumers and shareholders happy. Given rising inflationary expectations, advanced economies need labor arbitrage to keep costs of goods down. At the same time, these democratic societies want to decouple their supply chain from China.

    With the size of its young workforce, India has a unique opportunity to become the new workshop of the world and emerge as a stabilizing global force in a multipolar world. To grasp this historic opportunity, it has to liberalize its economy wisely.

    The Legacy of the Past

    India could do well to heed the lessons of the past. The Soviet Union, Western Europe and the US emerged as strong economies after World War II by leveraging their manufacturing base. The war economy had led to a relentless focus on infrastructure, mass production and industrialization. In the case of Western Europe, the Marshall Plan helped put shattered economies back on track.

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    Over time, these advanced economies deindustrialized and production started shifting to emerging economies. China’s rapprochement with the US allowed it to enter the postwar Western economic system. Reforms in 1978 were critical to its success. The fall of the Soviet Union in 1991 created a brave new world where companies chased cheap production. China, with its size, scale and speedy centralized decision-making, emerged as the big winner.

    As production moved to China, workers lost jobs in advanced economies and other industries did not emerge to retrain and employ them. The Rust Belt in the US has become a synonym for down-at-heel places left behind by globalization. Even as workers grew poorer, shareholders grew wealthier, exacerbating inequality.

    Today, the United States finds itself in a complicated position with China. On the one hand, the Middle Kingdom steals intellectual property, transgresses international law and challenges the US. On the other hand, it supplies American consumers with cheap goods they need. America’s economic stimulus during the pandemic has, in fact, reinforced the country’s dependency on China. So, Washington cannot hold China’s feet to the fire and penalize its bad behavior. Beijing follows its policy of pinpricks short of outright conflict.

    The US dollar is the reserve currency of the world. Since the days of Alan Greenspan, the Federal Reserve has followed a loose monetary policy. After the 2007-08 financial crisis, the US adopted the Japanese playbook from the 1990s and introduced quantitative easing. In practice, this means buying treasury and even corporate bonds to release money into the economy after interest rates touch zero. Such increased liquidity in the US has led to bloated company valuations and allowed the likes of Amazon or Uber to expand their operations. The cost of capital has been so low that profitability in the short or even medium run matters little.

    Loose monetary policy has enabled the US to counter China’s state-subsidized companies to some degree. Yet both policies have distorted the market. The US can only continue with loose monetary policy as long as inflation is low. Should inflation rise, interest rates would also have to rise. This might trigger a stock market collapse, increase the cost of capital for its companies and weaken the global dominance of the US economy.

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    To persist with its economic model and simultaneously contain China, the US needs to curb inflation. This is only possible by shifting some if not all production away from China. Mexico, Vietnam and Bangladesh are possible alternatives. Mexico has a major drug, violence and governance problem. Vietnam and Bangladesh benefit from huge Chinese investment. Therefore, they might not be the best hedge for securing supply chains from the Middle Kingdom, especially if the companies manufacturing in these countries are Chinese.

    As a vibrant democracy with a formidable military, India offers the US and the West a unique hedge against China. For geopolitical reasons alone, manufacturing in India makes sense. However, doing business in the country continues to be difficult because of red tape, corruption, erratic policymaking, a colonial bureaucracy with a socialistic culture and more.

    India’s Nehruvian past still hobbles the nation’s economy. The country adopted socialist command-and-control policies using a colonial-era bureaucracy that prevented the economy from achieving high economic growth. Manufacturing suffered the most. To start a factory, any entrepreneur needed multiple licenses that cost time, money and energy. Poor infrastructure made it difficult for manufacturers to compete with their East Asian counterparts. While wages were low in India, the cost of doing business made many manufacturers uncompetitive.

    Acquiring land in India is still a challenge. The experience of the Tata group in Singur revealed both political and legal risks that still exist. Similarly, convoluted labor laws made hiring and firing onerous, rendering companies inflexible and unable to respond quickly to market demand. Liberalization in 1991 improved matters, but the state continues to choke the supply side of the Indian economy.

    In the second half of the 1990s, liberalization lost momentum. Coalition governments supported by strong interest groups stalled reforms. In fact, India drifted back to left-leaning policies starting 2004 and this severely limited economic growth. For instance, many industrial and infrastructure projects were killed by ministers to protect the environment. India’s toxic legacy of Nehruvian socialism persisted in terms of continuing state intervention. The country never meaningfully transitioned from an agricultural to an industrial economy and still suffers from low productivity. This in turn has constrained consumption and slowed down growth.

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    India’s much-heralded information technology sector only grew because it was new. The government did not exactly know what was going on and, as a result, there were fewer regulations to constrain this sector. Fewer regulations meant that the likes of Infosys and Wipro had greater autonomy in decision-making and fewer bribes to pay.

    Reduce Red Tape

    The first thing that India needs is an overhaul of its colonial-era bureaucracy that resolutely strives to occupy the commanding heights of the economy. It foists endless red tape on business, strangles entrepreneurship and takes too long to make most decisions. Government service is seen as lifelong employment. Once people become bureaucrats, they have little incentive to perform. Like their colonial predecessors, they lord over citizens instead of serving them. Rarely do they craft sensible policies. Even when a government comes up with a good policy, bureaucrats implement it poorly when they are not sabotaging it actively. This must change. Bureaucrats must be accountable to citizens. Performance-linked promotions and dismissal for underperformance are long overdue.

    Over the years, politicians have tried to deliver benefits and services to citizens to win reelection. To get around a corrupt, colonial and dysfunctional bureaucracy, they instituted direct benefit transfers for welfare schemes, emulating other emerging economies like Brazil. This move is necessary but not sufficient. India needs sound economic policymaking directed by domain experts in each administrative department.

    Only members of the Indian Administrative Service (IAS) occupy key positions in the finance ministry. Instead, India needs economists, chartered accountants, finance professionals and those with varied skill sets in this ministry. The treasuries of the US, Britain, Germany and almost every advanced economies have this diversity of talent in their upper echelons.

    There is no reason why economic policymaking in 21st-century India should be monopolized by an archaic IAS. The government has made noise about the lateral entry of professionals into policymaking, but tangible results have been few and far between.

    If the bureaucracy holds India back, so does the judiciary. Nearly 37 million cases are pending in the courts. It takes around six years for a case to be resolved in a subordinate court, over three years in the high courts and another three years in the supreme court. A case that goes all the way to the supreme court takes an average of 10 years to resolve. Many cases get stuck for 20 to 30 years or more.

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    India needs to reform its judicial system if its economy is to thrive. Justice is invariably delayed, if not denied, and it also costs an arm and a leg. Not only does it add to transaction costs, but it also undermines business confidence. Virtual courts have already shown the way forward during the pandemic. A higher number of judges using both in-person and online technology could reduce the seemingly unending number of pending cases.

    Create Efficient Markets

    To improve labor productivity and consumption, the government must reduce inflation and improve purchasing power. For decades after independence in 1947, India was united politically but divided economically. Producers in one state could not sell in other states without paying taxes and, in some cases, bribes. In agricultural markets, they could not even sell in other districts. India’s new goods and services tax (GST) might be imperfect, but it has already made a difference. Even during a pandemic, interstate goods movement rose by 20% and menu costs, a term in economics used for the costs of adapting to changing prices or taxes, dropped because tax filings were done online.

    The 2016 Insolvency and Bankruptcy Code has led to major efficiency gains. Now, lenders can recover their debt more speedily. Bankruptcy proceedings are now much simpler even if haircuts remain high. Unsurprisingly, India has risen in the World Bank Doing Business rankings from 130 in 2016 to 63 in 2020.

    As Atul Singh and Manu Sharma explained in an article on Fair Observer in 2018, non-performing assets of Indian banks have led to a financial crisis. The government could do well to adopt some if not all the reforms the authors suggested. Given rising inflationary pressures because of rising oil prices, India’s central bank can no longer cut rates. So, the government has to be creative in tackling its banking issues and free up liquidity for Indian businesses with great potential to grow. Banks burnt by poor lending in the past and fearful of corruption charges as well must discover the judgment and appetite to lend to deserving businesses in a fast-growing economy that needs credit for capital formation.

    A little-noticed need of the Indian economy is to strengthen its own credit rating systems and agencies. Capital flows are aided by accurate corporate and political risk assessment. The US enjoys a global comparative advantage in attracting investments thanks to the big three homegrown agencies: S&P, Moody’s and Fitch. These agencies tend to fall short in their India assessment. The standards they set give American companies an advantage over Indian ones.

    Therefore, both the private sector and the government must strengthen Indian rating agencies such as CRISIL and ICRA. These agencies are improving continuously. They now have access to increased digital high-frequency data, which they can interpret in the domestic context. As a result, Indian agencies can benchmark corporate or sovereign risk better than their American counterparts for domestic markets. A better benchmarking of risk is likely to deepen the bond market and cause a multiplier effect by enabling companies to raise money for increased capital expenditure.

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    For decades, India followed a socialist model of agriculture, doling out large unsustainable subsidies. As Singh and Sharma explained in a separate article, the Soviet model was the inspiration for the Indian one. Indian agriculture denuded groundwater, emptied government coffers and lowered farm productivity. The current reforms allow farmers to grow what they want and sell wherever they want to bypass parasitic middlemen. The new legislation emulates the US farm bills and promises to boost agricultural production, lower inflation and increase exports. This legislation might also lower rural hunger and improve India’s human capital in the long term.

    India has to transition hundreds of millions from agriculture to industry. Currently, 58% of the country’s population is dependent on agriculture and contributes just 20% to gross domestic product (GDP). All advanced and industrialized economies have a much lower percentage of their populations engaged in agriculture. In the US, the figure is 1.3% and in Vietnam, 43% work in agriculture. The last time the US had 50% of its population engaged in agriculture was in 1870.

    Improve Infrastructure

    To facilitate movement from agriculture to industry, India must invest in infrastructure and urbanization. For decades, its infrastructure has been woefully inadequate. Indian cities are known to be chaotic and do not provide basic services to their citizens. Recently, India launched a $1.9-trillion National Infrastructure Pipeline that is engaged in a rollout of road, rail, seaport and airports to connect centers of manufacturing with points of export. This focus on infrastructure has to be consistent and relentless.

    India could emulate Chinese cities like Chongqing and Shenzhen that could be home to industry and hubs of trade, both domestic and international. Projects like the smart city in Dholera, 80 kilometers from Gujarat’s capital of Ahmedabad, are the way forward. Similarly, the new Production Linked Incentive scheme is the sort of policy India needs. The Tatas are setting up a plant to manufacture lithium-ion batteries under this scheme. Not only could Indian industry meet the needs of a fast-growing market, but it could also be a source of cheap imports for many other countries.

    India must not only focus on metropolises, but also smaller cities and towns where the cost of living is lower. Digitalization of work will allow people to stay in such urban areas. Of course, they will need investment and organization for which India must tap capital and talent not only nationally but internationally. For instance, pension funds in North America and Europe are seeking growth to meet their increasing liabilities. If India could get its act together, investment into Indian markets could be significant.

    A key part of infrastructure that needs reform in a low energy consumption society is the power sector. Gujarat’s growth is underpinned by increased production and improved distribution of electricity. The rest of the country must emulate this westernmost state and Gujarat itself must bring in further reforms. Renewable energy sources such as gas, solar, wind and hydro must grow further. A nationwide energy market would bring in efficiency gains and boost growth.

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    A focus on renewable energy also brings risks and opportunities. Currently, China controls critical metals and rare earths required in electric vehicle and battery manufacturing. Beijing has an effective monopoly over 80% of the world’s cobalt, 50% of lithium, 85% of rare earth oxides and 90% of rare earth metals. A decarbonized future cannot be intrinsically linked to an authoritarian state that has a history of not playing by free market rules.

    India’s $1.1-billion “Deep Ocean Mission” offers a unique opportunity for the country to provide energy security to democratic nations in North America, Europe and elsewhere. As they transition to clean technologies, India can provide a safer, more reliable and benign alternative to an increasingly belligerent China.

    In 2021, India has a historic opportunity to enter a new economic arc. The global conditions could not be more favorable. Advanced economies are looking to decouple from China without triggering inflation. India is the only country with the size and the scale to be an alternative. Its large youth population and rising middle class are powerful tailwinds for high economic growth. Indeed, India owes it not only to its citizens, but also to the rest of the world to get its act together and become a force for global stability at a time of much volatility and uncertainty.

    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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    Infrastructure: The Key to the China Challenge

    China has been recognized by Washington as the major rival to the United States in nearly every field. However, this isn’t the first time an Asian country has posed a threat to America’s economic dominance. In the mid-1980s, Japan built up a massive trade surplus with the United States, igniting a fierce backlash from both Republicans and Democrats over how it acquired US technology — often by theft, according to US officials — and how Tokyo used the government’s deep influence to push its companies into a dominant global position.

    But there was no nefarious scheme. In reality, Japan had made significant investments in its own education and infrastructure, allowing it to produce high-quality goods that American customers desired. In the case of China, American businesses and investors are covertly profiting by operating low-wage factories and selling technologies to their “partners” in China. American banks and venture capitalists are also active in China, funding agreements. Furthermore, with the Belt and Road Initiative (BRI), China’s infrastructure investment extends far beyond its own borders.

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    The BRI is Chinese President Xi Jinping’s hallmark foreign policy initiative and the world’s largest-ever global infrastructure project, funding and developing roads, power plants, ports, railroads, 5G networks and fiber-optic cables all over the world. The BRI was created with the goal of connecting China’s modern coastal cities with the country’s undeveloped heartland and to its Asian neighbors, firmly establishing China’s place at the center of an interlinked globe.

    The program has already surpassed its initial regional corridors and spread across every continent. The expansion of the BRI is worrying because it may make countries more vulnerable to Chinese political coercion while also allowing China to extend its authority more widely. 

    Infrastructure Wars

    US President Joe Biden and other G7 leaders launched a worldwide infrastructure plan, Build Back Better World (B3W), to counterweight China’s BRI during the G7 summit in Cornwall in June. The plan, according to a White House statement, aims to narrow infrastructure need in low and middle-income countries around the world through investment by the private sector, the G7 and its financial partners. The Biden administration also aims to use the plan to complement its domestic infrastructure investment and create more jobs at home to demonstrate US competitiveness abroad.

    The US government deserves credit for prioritizing a response to the BRI and collaborating with the G7 nations to provide an open, responsible and sustainable alternative. However, it seems unlikely that this new attempt would be sufficient to emulate the BRI and rebuild America’s own aging infrastructure, which, according to the Council on Foreign Relations, “is both dangerously overstretched and lagging behind that of its economic competitors, particularly China.”

    On the one hand, it’s unknown if B3W will be equipped with the necessary instruments to compete. The Biden administration has acknowledged that “status quo funding and financing approaches are inadequate,” hinting at a new financial structure but without providing specific details. It remains to be seen if B3W will assist development finance firms to stimulate adequate new private infrastructure investments as well as whether Congress will authorize much-needed extra funding.

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    Even with more funding, B3W may not be sufficiently ambitious. While the World Bank predicts that an $18-trillion global infrastructure deficit exists, the project will be unable to make real progress until extra resources are allocated to it.

    Also, the United States still lacks an affirmative Asia-Pacific trade policy. To compete with the BRI, the US will need to reach new trade and investment agreements while also bolstering core competitiveness in vital technologies such as 5G. It will also need to devote greater resources to leading the worldwide standards-setting process, as well as training, recruiting and maintaining elite personnel.

    On the other hand, China is often the only country willing to invest in vital infrastructure projects in underdeveloped and developing countries, and, in some cases, China is more competitive than the US as it can move quickly from design to construction. 

    Desire to Invest

    Furthermore, China’s desire to invest is unaffected by a country’s political system, as seen by the fact that it has signed memorandums of understanding with 140 nations, including 18 EU members and several other US allies such as Japan, South Korea, Australia and New Zealand. Even the United Kingdom, as a member of the G7, had a 5G expansion deal with Huawei that was canceled owing to security and geopolitical concerns. Nonetheless, the termination procedure will take about two years, during which time the Chinese tech behemoth will continue to run and upgrade the UK’s telecoms infrastructure.

    As a result, the BRI has fueled a rising belief in low and middle-income nations that China is on the rise and the US and its allies are on the decline. The policy consequence for these countries is that their future economic growth is dependent on strong political ties with China. 

    Unlike the US and European governments, which only make up for part of the exporters’ losses, Beijing guarantees the initial capital and repays the profits to the investing companies and banks. In addition, since there is no transfer of power and government in China, there will be virtually no major policy changes, meaning that investors will feel more secure. So far, about 60% of the BRI projects have been funded by the Chinese government and 26% by the private sector. 

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    For far too long, the US reaction to the BRI has been to emphasize its flaws and caution countries against accepting Chinese finance or technology without providing an alternative. Until now, this haphazard reaction has failed to protect American interests. The United States is now presenting a comprehensive, positive agenda for the first time. Transparency, economic, environmental and social sustainability, good governance and high standards are all emphasized in Build Back Better World.

    While providing a credible US-led alternative to the Belt and Road Initiative is desirable, the US must commit adequate financial and leadership resources to the effort. This is a good first step, but Washington must be careful not to create a new paranoia by demonizing economic and geopolitical rivals such as China and Japan to the point where it distorts priorities and leads to increased military spending rather than public investments in education, infrastructure and basic research, all of which are critical to America’s future prosperity and security.

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

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    India’s Highway Construction Is in the Fast Lane

    When experts look back at the early 2000s, they will observe that India embarked on a construction spree to develop its transport infrastructure. The country is emulating what the United States and Europe did in the previous century and what China and East Asia have done more recently. Traditionally, India focused on railways. For the last 20 years, roads have been the priority. Now, the country is also focusing on its 116 rivers and long coastline to develop commercial waterways. 

    As is well known, various factors contribute to a nation’s development. The most fundamental is the availability of food and water for the population. Here, India has had some success since its independence in 1947. In health care and education, India can and must do better. India also needs to improve safety and security for its citizens and improve the rule of law. The factor most important for India’s development is perhaps transportation because it has the greatest multiplier effect on the economy. As a result, transportation has the greatest potential to improve the lives of ordinary citizens.

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    Transportation infrastructure, such as railways, roads, air traffic and waterways, are the arteries of a country’s economy. The German economy was built on the backbone of an outstanding railway system and the legendary autobahn. The US is knit together by a crisscrossing network of freight trains, interstate highways and airports. Advanced economies like Japan, South Korea, Switzerland and the Netherlands are known for their evolved infrastructure.

    In recent years, China has set the standard for implementing infrastructure at a scale and speed unprecedented in history. Most economists credit spectacular rates of economic growth to Chinese investment in infrastructure. India is betting that building good infrastructure will boost growth, create jobs and raise the standard of living for hundreds of millions.

    Railway and Highway Infrastructure

    According to a 2018 report by NITI Aayog, the premier policy think tank of the Indian government, 59% of all freight in India is transported by road, 35% by railways, 6% by waterways and less than 1% by air.

    On March 31, 2020, India’s railway track length stood at 126,366 kilometers and, on March 31, 2019, the length of national highways was 132,500 kilometers. Per 100 square kilometers, India has more railway tracks and highways than countries like the US and France. This does not necessarily mean India is doing well. South Korea and Japan have over four times the highway length per 100 square kilometers.

    Instead of the density of infrastructure per unit area, density per population size seems to be the more accurate metric. When it comes to infrastructure per million people, India fares very poorly. For instance, Indonesia’s population is merely 20% of India’s, but its highways are twice as long as India’s. South Korea’s population is a tiny 4% of India’s, but its highways are thrice as long as India’s. The top two stars on the infrastructure front are the US and Australia, followed by Japan and France.

    India’s highway network is inadequate for the country’s needs. Highways comprise 1.94% of India’s total road networks but carry a staggering 40% of total road traffic. This means that not only do they suffer high wear and tear, but transportation continues to be a big bottleneck for the economy. It is little surprise that India is finally investing in transport infrastructure.

    After independence in 1947, India underinvested in infrastructure. Two centuries of colonial extraction had left the country with limited resources and almost unlimited public needs. In its early years of independence, India struggled to feed its masses. There was little money to build railways, roads, ports, airports and transport infrastructure.

    India also lacked the expertise to build such infrastructure at scale. Planners, engineers and skilled labor were all in short supply. The nation did not have enough knowledge of transport technology either. There was another challenge in a densely populated democratic country. Infrastructure projects result in the displacement of large numbers of people. Many resist, others negotiate hard and still, others approach their local politicians who start resisting these projects to win votes.

    India’s varied geography also imposed daunting challenges for developing infrastructure. Largely flat countries like Australia and France could focus on railways, which run twice as long as their roads. Mountainous countries like South Korea and Japan have built more roads than railway lines. While plains and plateaus in India are crisscrossed by railway lines, roads are the means of transportation in its extensive mountainous regions.

    A New Focus

    Over the last 20 years, India’s focus has shifted to roads. This began under the coalition National Democratic Alliance (NDA) government led by Atal Bihari Vajpayee of the Bharatiya Janata Party (BJP). Although this government lost the 2004 election, NDA’s vision set in motion transport infrastructure development. In 2014, the BJP-led NDA returned to power and accelerated the building of highways across the country.

    NDA-initiated highway construction was kickstarted by the Golden Quadrilateral, a project connecting India’s four biggest cities: Delhi, Mumbai, Chennai and Kolkata. This boosted economic growth. Since NDA returned to power, India has embarked on Bharatmala Pariyojana, an ambitious project to connect the entire country through a network of highways like the fabled interstate highway system of the US. Even remote regions such as the northeast and Jammu and Kashmir will be covered.

    In the past, India did not measure highways as per international standards. This meant their growth could not be measured and compared easily. To quote management guru Peter F. Drucker, “If you can’t measure it, you can’t improve it.” Since 2018, the measure of highway length in India has been aligned with international standards. While impressive figures on the growth of national highways have been published, their interpretation now is clear and consistent.

    There has also been a steady increase in highway construction rates. In March 2021, it reached 37 kms/day. For the 2020-21 financial year — India’s financial year begins on April 1 and ends on March 31 — road construction averaged 29.81 kms/day. In 2014-15, the rate was 16.61 kms/day. Six years on, the road construction rate has almost doubled and is the fastest India has achieved since independence. The credit goes to Nitin Gadkari, the minister for road transport, one of the star performers of the NDA cabinet. In March, he claimed that India had secured the world record for fastest road construction.

    India’s Evolving Waterways Make a Big Splash

    The oldest civilizations have originated and flourished near major rivers for a simple reason. They provide fresh water, a fundamental human need. Rivers also provided an easy way to travel and transport goods before the advent of roads and railways. Even today, commercial transport of goods via rivers, lakes and oceans continues to cost less than via land. While container ships regularly carry goods across the high seas, most countries no longer use their rivers very well. The US, Australia, Japan, Russia and China are among the few countries that use their rivers and inland waterways well. 

    India has 116 rivers. Potentially, these could provide 35,000 kilometers of waterways and should be tapped. The government set up the Inland Waterways Authority of India in 1986 for “development and regulation of inland waterways for shipping and navigation.” In spite of tremendous cost advantages, waterways’ commercialization received little attention over the next 30 years. In 2016, the NDA declared 111 rivers across India as national waterways, a quantum leap up from five. By 2020, the government operationalized 12 of these waterways. The journey to suitably develop the remaining 99 will be a long and expensive one. However, this investment will cut logistics costs tremendously in the long run and boost India’s competitiveness.

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    Gadkari points out that the cost of logistics in India is 18% of the total cost of production. For China, this figure is 8-10%. Notably, waterways account for 47% of total transportation in China, compared to 3.5% in India. As waterways develop, so will commercial activity along their banks and lead to job creation.

    India has another major underutilized natural resource. It has a long coastline of 7,500 kilometers spread across 14 states. To develop ports and coastal transportation, the government has launched the Sagarmala project. This could achieve what the Golden Quadrilateral did for roads in the past. By 2025, the government aims to increase the share of waterways transportation from 3.5% to 6%, reducing logistics costs, boosting exports and generating 4 million new jobs.

    The Road Ahead

    About 53% of India’s population is under 25 years of age and many of them need jobs. Employed young people are more likely to send their children to school. They are likely to eat better and live longer. So far, India’s growth rate has not exceeded the job creation rate. For social and political stability, the government needs to create jobs. 

    While India’s economy continues to grow, the pace of growth does not match the employment needs of India’s young population. Building infrastructure is one of the best ways to generate employment because of its massive multiplier effect in an emerging economy like India. The country needs competent ministers and bureaucrats with domain expertise such as Gadkari. Key ministries overseeing power and finance in New Delhi and India’s state capitals should emulate this model.

    Along with building infrastructure, India must reform its arcane laws of colonial and socialist heritage to boost economic activity. The government must also reform education and vocational training in collaboration with industry to raise the skills of the workforce, improve employability and increase productivity. This is a tall order, but if India can get its house in order, then domestic and foreign investment would flow in. Then, the country would finally be able to join the Asian tigers as one of the world’s fast-growing economies.

    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 China, Cuba and Ohio, Reform and Inertia Go to Battle

    In August, the Daily Devil’s Dictionary appears in a single weekly edition containing multiple items taken from a variety of contexts.

    This week, before glancing at political division in the US, we look at what is shaping up to be a game-changing development in China. Bloomberg’s reporters refer to it as a “policy bombshell,” but mainstream media in the West have largely ignored it. This neglect may have something to do with the conviction in the West that, though there are monumentally important problems to deal with, the inertia of the political and economic system we have today is such that no one believes that anything we decide to do will ever change anything. Could China be on course to become the century’s new “exceptional nation”?

    Xi’s Promise of a New Great Leap Forward

    In his successful 2008 campaign, Barack Obama railed against George W. Bush’s tax cuts and wars, only to maintain both during his two terms in office. In his campaign last year, Joe Biden lamented Donald Trump’s provocative policies regarding Cuba and Iran as well as Trump’s tax cuts. But after six months at the helm, he has shown no serious intent to reverse those policies. 

    Both Democratic presidents claimed they would effect change (Obama) and be transformative (Biden), hiding they would be acting to reduce the inequality between makers and takers that Republicans promoted as an illustration of capitalist virtue. Both Democrats have shown themselves ready to accommodate and defend the interests of the 1% who supported their campaigns while expressing a sentimental commitment to improving everyone’s lives. The structure of US democracy seems to make challenging the status quo an impossible task. Sentiments consistently fail to influence reality.

    Thought Suppression Flourishes in France and Washington

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    China is governed by an exclusive elite, the Communist Party. Its monopoly on power spares its leaders the trouble of having to invent campaign promises to seduce ignorant voters. Many have noticed the comfortable complicity of China’s communist leaders with an economy that has become a decidedly capitalist power structure. If the US has cultivated an efficient, legally validated system of structured private capitalist corruption that offers the wealthy class the privilege of controlling politics, the Chinese have perfected a system of state corruption that offers the politically powerful direct control of wealth itself.

    All recent US regimes have had no choice but to capitulate to the private interests that literally own the economy. The Democratic Party’s public war against the progressive reformers within its midst provides a good demonstration of the phenomenon. The democratic processes laid out in the US Constitution have been successfully manipulated over time to comfort oligarchy. This makes it particularly remarkable today that China’s authoritarian regime under President Xi Jinping, a true and largely unassailable oligarchy, appears to be providing the rare example of a government intent on taking action against the powerful interests that control the global economy. Xi appears to be taking steps to move China’s political economy in a more egalitarian direction. It may not be Karl Marx, but it clearly isn’t Milton Friedman.

    According to Bloomberg journalists, Tom Hancock and Tom Orlick, “Xi is engaging in a “capitalist smackdown” that will change the way the Chinese economy works in the coming years. Xi’s new agenda “puts three priorities ahead of unfettered growth.” The first, which should surprise no one, is national security. It “includes control of data and greater self-reliance in technology. All nations in our dangerous world are enamored of security. The second is far more radical: “Common prosperity, which aims to curb inequalities that have soared in recent decades.” The third is consistent with traditional Chinese culture: “Stability, which means tamping down discontent among China’s middle class.” In Chinese culture, this is the effect of the virtue of harmony.

    In other words, Xi is attempting to do what Joe Biden has ominously warned he might do: use his authoritarian power to achieve pragmatic goals in the name of the people that are difficult to achieve in the kind of democracy practiced in the US.

    Common prosperity:

    The opposite of the now current regime of private prosperity that works by undermining what was once idealized in the notion of the commonwealth, implying a fraternal sharing of national wealth

    The Context

    Xi appears to be announcing a quiet but stern revolution that has already provoked panic among many of the vested interests in the world of finance, both foreign and Chinese. Forty years ago, Deng Xiaoping’s departure from Mao Zedong’s radical communist egalitarianism and his encouragement of Western-style economic freedom led to China becoming a fixture of the global capitalist system. It achieved this goal by exciting the appetites of both Western and Chinese economic opportunists, leading to a record-breaking expansion of the Chinese economy.

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    The new policy aims at relieving the suffering of “stretched workers, stressed parents, and squeezed start-ups.” The article’s authors designate the losers: “tech billionaires and their backers in the stock market, highly leveraged property companies including China Evergrande Group, and foreign venture capital firms that had hoped to take Chinese companies public in the U.S.” The Economist describes the intended outcome in these terms: “Alibaba in e-commerce or Tencent in payments and entertainment will be around but less overweening — and less lucrative. Policies to curb their market power will redistribute some of their profits to smaller merchants and app developers, and to their workers.”

    Xi’s gambit doesn’t appear to be merely rhetorical. Whether he can accomplish his goals remains an open question. He has undoubtedly set the scene for a major drama that, as it plays out, will most likely dominate the decade to come. Both the world of global capital and the declining US empire will react. It could lead to war. It could also lead to radical restructuring of the current geopolitical order in what may become a more multipolar world. For the moment, we the spectators are simply discovering the dialogue of Act I, Scene 1.

    Can Xi Really Corral Such Ferocious Animals?

    The same Bloomberg article explains Xi’s political motivation for his “capitalist smackdown.”  To ensure the population’s acceptance of his hold on the reins of power, Xi wants to reassure the middle class that he is defending their interests. There may be more complex geopolitical causes, but that motivation clearly explains the urgency of the shift. The authors go on to evoke the possible downside of Xi’s new agenda: “The bigger risk for Beijing: Heavy state intervention might dampen the animal spirits that drive private investment and reverse an integration with the global economy that has helped drive growth in the last four decades.”

    Animal spirits:

    The spontaneous exuberance attributed to unthinking creatures with energy to expend, an unbridled appetite and scorn for anything that stands in their way

    The Context

    Xi is undoubtedly a clever geopolitical strategist. He can see clearly the issues Western empires have struggled with in past centuries. China had a privileged vantage point for observing the British Empire’s strengths and weaknesses after experiencing a pair of Opium Wars in the 19th century. The incoherence of nationalistic rivalries in Europe ultimately undermined the British Empire that had reduced much of Asia, and particularly India and China, to a state of economic submission, if not slavery. 

    Two world wars that included an emerging Japanese Empire eventually cleared the space for the USA’s consumer society-led neo-colonial, officially apolitical but heavily militaristic empire that eventually crafted a productive role for China’s post-Marxist economy. The Chinese “workshop of the world” became a vital feature of a system focused on permanent growth and obsessively stoked consumerism. Following World War II, American consumers became literally addicted to falling prices on consumer goods. China, with help from US capitalists, could step in to provide an ever-expanding cornucopia of goods at lower prices.

    Xi is aware that the entire Western world, struggling with various imperfect models of democracy, has reached a tipping point regarding two existential problems: health and wealth. Both are clearly out of control. Governments in the West have demonstrably failed to address both the health of the planet, increasingly subjected to climate chaos, and the health of their people. None more so than the US, a nation that continues to resist even the idea of universal health care and persists in spectacularly bungling most of its initiatives with regard to the COVID-19 drama. 

    Embed from Getty Images

    With its retrograde approach to the distribution of vaccines, the intellectual ownership-obsessed West, guided by the wisdom of Bill Gates, has failed to live up to its image as the putative provider of global solutions. As it focuses on protecting and exploiting its supposed intellectual property in competition with the rest of the world, the West has, embarrassingly for itself, allowed spectacular chaos to continue and amplify. As for wealth, the effects of the pandemic have aggravated the growing and insurmountable gap between the hyper-rich and the rest of humanity. The idea that everyone can someday become a millionaire has been replaced by the clear perception that the super-wealthy will do everything in their power to ensure that only a select few will ever be admitted into their club.

    China’s authoritarian system has made it easier to enact and implement policy. Powerless to solve problems, Western governments, captured by binary logic, prefer to explore hypothetical consequences and debate what emerge as two contradictory positions. With his Belt and Road Initiative, Xi has already expertly used the contrast between the image of constructive cooperation and the American addiction to war, military operations and sanctions as the solution to all problems. Xi’s gambit may translate more as image-building than economic realism, and it may rely as much on corruption as the will to collaborate, but it stands as an effective example of soft power.

    Now Xi can remake his image as a populist hero at home. His announced policies even correspond to the fantasies of populists on the right and left who would love to see the financial operators ushered out the door, replaced by laws and practices that at least appear to be transferring power to the people under the protection of the government. Xi promises to put a leash on the over-exuberant animals who alone make the law in the capitalist West.

    Antony Blinken Worries About China’s Ambitions

    The Biden administration has apparently decided that the key to consolidating its image with voters lies in a foreign policy that consists of getting tough on the nations that refuse to get in line behind US leadership. The first among them and the one most likely to inspire the kind of fear that galvanizes American voters is, of course, China. With nearly four times the population of the United States, the quantity of fear it can generate will be spectacular. And in politics, it’s the spectacle that counts.

    Bloomberg has published an article by Peter Martin with the headline, “Blinken Warns Asian Nations of China’s Growing Nuclear Ambitions,” in which he cites the US secretary of state’s “‘deep concern’ over China’s growing nuclear arsenal.” 

    Deep concern

    The emotion politicians claim to have, thanks to their privileged knowledge of geopolitical realities, which, when communicated to the people, generates the degree of fear that justifies risky and aggressive policies, including war

    The Context

    Reuters reports Secretary Blinken’s complaint that “Beijing has sharply deviated from its decades-old nuclear strategy based on minimum deterrence.” China is expected to understand that only the US is authorized to practice maximum deterrence. The following two paragraphs in the Reuters article give an idea of why Blinken’s concern is so “deep”:

    “A 2020 Pentagon report estimated China’s nuclear warhead stockpile in ‘the low 200s’ and said it was projected to at least double in size as Beijing expands and modernizes its forces.

    Analysts say the United States has around 3,800 warheads, and according to a State Department factsheet, 1,357 of those were deployed as of March 1.”

    Who wouldn’t be concerned with only 3,800 warheads to ensure peace in the world? Bloomberg quotes Chinese Foreign Minister Wang Yi, who disapproves of “countries interfering in each other’s internal affairs.” Wang added a casual historical observation “that Asian nations had been bullied by others in the past and didn’t require ‘teachers’ or ‘saviors.’” The Opium Wars apparently left an indelible smoky taste in the Chinese collective unconscious.

    The Latest Skirmish Inside the Increasingly Divided US Democratic Party

    As the Republican Party continues its existential anguish surrounding the role of Donald Trump, the Democratic Party struggles to define whether its loyalty is to the people or the lobbies that fund its campaigns. The drama played out this past week in a special election pitting two African American women against each other.

    The Los Angeles Times provides its explanation of the come-from-behind victory of mainstream Shontel Brown over progressive Nina Turner in a high profile Democratic primary election for a congressional seat in Ohio: “Brown’s primary win is a boost for moderate Democrats who have been in increasingly testy tussles with progressive activists and gives a new voice in Congress for voters who are more hungry for calm pragmatism than for the passionate populism that animates Sanders’ followers.”

    Calm pragmatism:

    The fear of calling into question the visible cause of one’s suffering because the status quo has proved so destructive that people think any change will make things even worse

    The Context

    One Democratic political consultant in Cleveland explained what he thought “calm pragmatism” amounts to: “People are tired and worn out after the last four or five years.” They have stopped thinking about the implications of political choices and simply hope there will be a new status quo. The loser, Nina Turner, claimed that her campaign “didn’t lose this race. Evil money manipulated and maligned this election.” She has a point, since the effect on politics of money — once deemed in the Christian West to be “the root of all evil” — now dominates the rhetoric deployed in campaigns to the point of definitively crippling and even excluding serious political debate. Populist passion is real, but so is the passion of fear-mongering that incites voters to retreat into the illusion of calm pragmatism.

    On an unrelated topic, Al Jazeera’s senior political analyst, Marwan Bishara, has expressed his surprise at the African Union’s acceptance of Israel as an observer despite its consistent criticism of what it qualifies as Tel Aviv’s apartheid policies. Bishara explains that African nations may “reckon that Israel has major sway in Washington and may be of help to influence the decisions of the world’s superpower in their favour.” He then adds, “Indeed, such pragmatism — read opportunism — may have worked for the likes of Sudan in getting US sanctions lifted after it began normalising relations with Israel.”

    Embed from Getty Images

    Bishara thus equates “calm pragmatism” with “cynical opportunism.” Can the Ohio voters who chose Brown over Turner be accused of opportunism? Undoubtedly no, if only because they have nothing specific to gain from Brown’s election. The true explanation is the “evil money” Turner complains about paid for yet another media campaign based on stoking voters’ fear of the unknown. Democratic Party stalwarts — which included Hillary Clinton, Jim Clyburn and their sources of corporate money — effectively countered the successful grassroots funding of Turner’s campaign and turned the tide in Brown’s favor. Those stalwarts and their backers are the opportunists. The voters persuaded by their fear of the unknown were their dupes.

    What links these two stories together is what a significant factor in Brown’s primary victory. As the Times of Israel explains, a lobbying group, “Democratic Majority for Israel (DMFI) threw its support behind Brown.” The DMFI reportedly contributed nearly $2 million to Brown’s campaign. Why? Because they know that Turner is one of the rare American politicians who has the independence of thought to criticize Israel, something no US politician is permitted to do on pain of being branded anti-Semitic. The idea that Turner might challenge the unconditional commitment of the US to supporting Israel galvanized the white suburban voters who ended up giving Brown the majority.

    The lockstep alignment of the US with Israel has been as important a factor as access to oil in determining US Middle East policy in recent decades. That policy has been disastrous for the region, the US and the world in a variety of ways. Is that the result people still expect from following a policy of calm pragmatism?

    A Washington Post Columnist’s Shameful Feinting With Damned Praise

    Conservative Washington Post columnist Marc A. Thiessen quite logically makes it clear that he is ready to come to the defense of black Cubans as the most effective way of undermining pretentions of the most vocal black US Americans: “As the Cuban people — up to 75 percent of whom have Afro-Cuban ancestry — rose up to demand their freedom, the Black Lives Matter Global Network Foundation issued a statement praising the brutal regime that oppresses them and calling on the Biden administration to lift the U.S. embargo on Cuba.”

    Praise:

    Make an objectively true statement describing a complex situation that includes a reference to a regime that has been labeled for ideological reasons as a diabolical enemy of every moral (i.e., economic) principle the United States is believed to stand for

    The Context

    In July, protests spread in Cuba provoked by a variety of ills for which many Cubans, succumbing to conditions of severe deprivation, wish to hold their government to account. US media predictably seized upon the occasion to nourish the dream of various interested parties in the US — mostly located in the quintessential swing state, Florida — to restore the situation of effective neo-colonial rule that the US enjoyed over the island from 1915 to 1959.

    The first thing to notice in Thiessen’s piece, as in most of the media treatment in the US, is the facile use of the term “the Cuban people.” When a crowd of protesters appears, they become “the Cuban people.” Many of the same pundits in 2003 claimed that an overwhelming majority of Iraqis were ready to toss flowers at US soldiers invading their country. Honest reporters might write “a significant number of discontented Cubans” or some variation on that idea, but the dishonest ones simply declare that the protesters, some waving US flags, are synonymous with “the Cuban people.”

    Thiessen reveals his utter dishonesty when he complains that Black Lives Matters was “praising the brutal regime” in its statement. Thiessen links to a BLM statement on Instagram that begins by condemning “the U.S. government’s inhumane treatment of Cubans.” At no point does it praise the Cuban government other than citing an objective fact of “the country’s strong medical care and history of lending doctors and nurses to disasters around the world.” The BLM statement notes one other objective fact concerning a government’s policies, that “the United States has forced pain and suffering on the people of Cuba” through its embargo.

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    Anyone inclined to doubt that fact need simply refer to the State Department memorandum of April 6, 1960, that describes a policy that has been in place for the last 60 years: “The only foreseeable means of alienating internal support is through disenchantment and disaffection based on economic dissatisfaction and hardship.” It recommends “every possible means should be undertaken promptly to weaken the economic life of Cuba … to decrease monetary and real wages, to bring about hunger, desperation and overthrow of government.”

    Although the sanctions regime was loosened in 2015 by Barack Obama, Donald Trump scaled back and imposed new crippling measures. During his campaign last year, candidate Joe Biden proclaimed: “I’d try to reverse the failed Trump policies that inflicted harm on Cubans and their families.” Instead, he has maintained Trump’s sanctions and last week added new ones, while promising even “more to come.”

     *[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 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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    The Guardian view on post-Covid recovery: powered by the state not the market | Editorial

    OpinionCoronavirusThe Guardian view on post-Covid recovery: powered by the state not the marketEditorialThe Thatcherite wing of the Conservative party desires a restoration of ideas whose time has come and gone Mon 9 Aug 2021 14.02 EDTLast modified on Mon 9 Aug 2021 15.35 EDTThe Conservative party hooked British capitalism to the state’s life support system for the past 18 months. So it takes chutzpah to think, as business secretary Kwasi Kwarteng does, of putting the free market at the heart of a post-Covid recovery. Yet lengthening NHS waiting lists, hiking consumer energy bills and welfare cuts when poverty is rising all betray a mindset that regards the re-legitimation of state intervention as threatening a way of life rather than securing it.What the Thatcherite wing of the Conservative party desires is a restoration. For them this is an opportunity to go back to 1979 and use tried-and-tested ways to stabilise prices, crush labour and discipline poorer nations. These rightwingers yearn for higher interest rates, to prioritise financial returns on assets and the use of creditor power to squeeze the global south.Such ideologues are likely, in part, to be disappointed. The US president, Joe Biden, does not see the world their way, saying this April that “trickle-down economics”, associated with Ronald Reagan, didn’t work. The president aims to show that the state can do good, and the early results are promising. His Covid-related aid boost will push the share of Americans in poverty to the lowest level on record. Mr Biden’s treasury secretary, Janet Yellen, professes a “free market” scepticism. She has promoted the social benefits of running the economy “hot” by maximising the use of all available resources. Her inspiration is the economist Arthur Okun, who in 1973 argued that governments increasing employment would foster “a process of ladder climbing” in the job market that would reduce inequality and stimulate productivity growth. Ms Yellen has stuck to this playbook in office.Perhaps the greatest pushback against the return of laissez-faire dominance in economics comes from China. Beijing has surpassed the US in some key technologies. Mr Biden’s economic team is blunt about needing to use the state for more “targeted efforts to try to build domestic industrial strength … when we’re dealing with competitors like China that are not operating on market-based terms”.The state is, clearly, not powerless against global capital. During Covid it paid for millions of workers without breaking a sweat. Contrary to conventional thinking there was no threat from rising deficits to interest rates. Thatcherism was defined by Nigel Lawson as “increasing freedom for markets to work within a framework of firm monetary and fiscal discipline”. This saw the state put in service of business interests rather than mediating between labour and capital. It also left Britain woefully unprepared, and ill-equipped, for the pandemic. A Thatcherite approach will not produce a fairer distribution of growth. It will militate against support during downturns and plans to “level up” the regions. Ministers ought to outline a new role for the state rather than relying on failed ideas about what the market can do.TopicsCoronavirusOpinionConservativesMargaret ThatcherEconomicsJoe BidenUS politicsRonald ReaganeditorialsReuse this content More

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    Can Saudi Arabia Balance Social and Economic Change?

    The World Bank issued a stark warning in its 2018 outlook for the Saudi economy: “The Kingdom likely faces a looming poverty problem.” The bank has since noted in its 2019 and 2020 outlooks that “while no official information is available on poverty, identifying and supporting low-income households is challenging.” Dependent on world oil prices, the curve of gross domestic product (GPD) per capita in Saudi Arabia was never a straight line upward. Instead, it ebbed and flowed.

    Austerity for the Poor and Prosperity for the Rich

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    In one example, Saudi GDP per capita dropped by almost half from a peak of $17,872 in 1981 to $8,685 in 2001, the year in which 15 Saudi middle-class nationals constituted the majority of jihadists who flew airplanes into New York’s World Trade Center towers and the Pentagon in Washington. It was also the year in which many Saudis struggled to make ends meet amid depressed oil prices and then-King Abdullah’s efforts to introduce a measure of Saudi fiscal restraint. Many people held two to three jobs.

    “Prior to the Gulf War, we didn’t pay rent in student dormitories — now we do,” a Saudi student enrolled in Saudi Arabia’s prestigious King Fahd Petroleum and Minerals University told this writer at the time. “In the past, it didn’t matter if you didn’t complete your studies in five years. Now you lose your scholarship if you don’t. Soon we’ll be asked to pay for tuition. Before the Gulf War, you had 10 job offers when you graduated. Now you’re lucky if you get one,” the student said referring to the US-led reversal of the Iraqi invasion of Kuwait in 1990.

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    “There’s nothing to do here but sit around, watch television and smoke shisha,” added Abdulaziz, one of the student’s friends. “There’s nothing we can do to change things. That’s why we get married early, only to discover that it was a mistake.”

    Saudi GDP per capita has dropped again, although less dramatically, from $23,337 in the year that the World Bank warned about looming poverty to $20,110 in 2020. On a positive note, the bank reports that while “poverty information and access to survey data to measure welfare conditions have been limited,” Saudi Arabia has seen “gains in administrative capacity to identify and support low-income households.” It warned, however, that the middle class could be most exposed to the pains of austerity and fiscal restraint.

    A Different Saudi Arabia

    To be sure, the Saudi Arabia at the turn of the century is not the same kingdom as today. Saudis made up one of the largest contingents of foreign fighters in the Islamic State group that seized territory in Syria and Iraq in 2014. Despite this, Saudi citizens are unlikely to respond to a unilateral rewriting of a social contract that promised cradle-to-grave-welfare and potential economic hardship by drifting toward militancy and extremism at a time that a young crown prince has promised massive change and delivered some.

    Crown Prince Mohammed bin Salman has liberalized social mores, rolled back the influence of ultra-conservative clerics, created greater leisure and entertainment offerings, and enhanced women’s rights and professional opportunities. This forms part of his plan to wean Saudi Arabia off its dependency on oil exports and diversify the economy. He has simultaneously tightened the political aspect of the kingdom’s social contract involving the public’s absolute surrender of all political rights, including freedom of expression, media and assembly.

    In exchange, Mohammed bin Salman’s Vision 2030 reform plan promises, according to the World Bank, to protect citizens from the pain of economic change by “modernizing the social welfare system, redirecting price subsidies toward those in need, preparing and training those unable to find employment, and providing tailored care and support to the most vulnerable citizen.” In doing so, the government has sought to soften the impact of higher energy prices and the tripling of value-added tax and expatriate levy.

    Embed from Getty Images

    More than social protections, Vision 2030 is about creating jobs for Saudis in a country where unemployment was 11.7% in the first quarter of this year. In the last three years, the Saudi private sector reportedly created a third of the 1.2 million jobs the kingdom needs to generate by 2022 to meet its unemployment target. The country’s statistics agency said the first-quarter unemployment was Saudi Arabia’s lowest in nearly five years. But the decline was partly driven by people dropping out of the labor force rather than new job creation.

    Jobs for Saudis

    In May, Mohammed bin Salman asserted in a wide-ranging interview that “we have 200,000 to 250,000 people getting into the job market each year and public sector jobs are limited.” Taking tourism as an example, he said the development of the industry would create 3 million jobs, 1 million of which would be for Saudis who, over time, could replace expats who would initially fill two-thirds of the openings.

    “Once we create three million jobs, we can Saudize them in the future. There are also jobs in the industrial sector and so on,” Prince Mohammed said. He predicted at the same time that the percentage of foreigners in the kingdom could increase from a third of the population today to half in the next decade or two.

    Writing about the changing social contract in Saudi Arabia, Mira al-Hussein and Eman Alhussein cautioned that the government needs to manage rapid economic and social change, in part by providing clearer information to the public. The scholars identified issues involving rights of foreigners versus rights accorded children of mixed Saudi and non-Saudi marriages, the rollback of religion in public life and austerity measures as potential points of friction in the kingdom. “The ramifications of existing grievances and the increasing polarization within Gulf societies … as well as the extensive social engineering programs have pitted conservatives against liberals. Arab Gulf States’ ability to redefine their social contracts without turbulence will depend on their tactful avoidance of creating new grievances and on solving existing ones,” the authors wrote.

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