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      in Elections

      US economy bounces back but deeper trends hint at enduring woe

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      [embedded content]
      The US economy bounced sharply back from the record-setting slump at the start of the coronavirus pandemic, according to government figures released on Thursday, handing Donald Trump a key talking point days before the election.
      According to the Bureau of Economic Analysis gross domestic product (GDP) rose at an annualized rate of 33.1% between July and September and was up 7.4% compared to the previous quarter. The previous record was a 3.9% quarterly increase in 1950.
      Trump was quick to claim credit, tweeting the figures were the “Biggest and Best in the History of our Country, and not even close.”

      Donald J. Trump
      (@realDonaldTrump)
      GDP number just announced. Biggest and Best in the History of our Country, and not even close. Next year will be FANTASTIC!!! However, Sleepy Joe Biden and his proposed record setting tax increase, would kill it all. So glad this great GDP number came out before November 3rd.

      October 29, 2020

      But the numbers show the US still has a long way to go to escape the devastation wrought by Covid-19 and were boosted by extra unemployment payments, business loans and direct payments, none of which have been replenished for the fourth quarter.
      The news comes just five days before the US election and is the last major economic release before polls close. Even before the figures were released the Trump campaign released ads boasting: “FASTEST GDP GROWTH IN HISTORY.”
      Big issues remain for the economy, however. The growth rate announcement came on the same day that the labor department announced that another 751,000 people filed for unemployment claims last week and the unemployment rate, at 7.9%, is twice as high as it was in February before the pandemic struck the US.
      A closer look at the numbers shows that the US’s economic woes are far from over. Thursday’s figures follow an equally historic slump in the second quarter. The US economy shrank by a revised annual rate of 31.4% between April and June, its sharpest contraction since the second world war, as much of the country went into lockdown to control the virus.
      The annual rate suggests the economy will continue on its current trend for the rest of the year. But such huge swings make the annualized figures misleading – no one expects such massive losses or gains to continue but most economists expect the US economy to be smaller at the end of the year than it was at the beginning.
      Gus Faucher, chief economist at PNC, said the figures represented “real growth” but added “there is still a long way to go before we get back to normal.”
      The decision to reopen much of the economy has provided a considerable boost, especially to consumer spending, which drove much of the recovery. But it comes as coronavirus infections are soaring in the US. Covid cases hit new highs over the weekend and the US now has the largest number of infections, more than 8.6m, and deaths, over 225,000, in the world.
      There are also signs that the recovery has slowed in recent months. Unemployment claims remain at historically high levels and the number of new jobs being created has dropped month on month. The economic situation for women, people of colour and teenagers remains difficult. The unemployment rate fell to 7.9% for the US population overall in September. For Black Americans it was 12.1% and for Black teens (16-19) it was over 20%.
      GDP is the broadest measure of the economy and includes personal consumption, business investment, government spending and net exports. The figure has often been criticized as a measure of economic health – GDP growth has, for example, done little to address growing income inequality.
      For some still feeling the impact of the pandemic and its attendant recession the latest GDP news was little comfort, especially as Congress remains deadlocked over further stimulus relief.
      Tim Swartz in Mesa, Arizona, stopped receiving unemployment benefits on 5 September after the unemployment office flagged an issue with his payments. When the pandemic hit he had to stop working as an Uber and delivery driver to care for his five children, including one with special needs. His wife works full-time as a medicine technician at a facility for Alzheimer’s patients.
      “I cannot get any answers from anyone on the phone or through emails. I’m behind on rent and utilities,” Swartz said. He has now received an eviction notice. “I’m not sure how we will pay the outstanding balances for rent and utilities,” he said.
      “Many of us are losing hope along with everything we have worked so hard for,” said Swartz. Three of his children had to recently return to online learning after exposure to classmates who tested positive for coronavirus, further delaying his return to work. “Without any relief package to help keep the economy going I don’t see much growth in the near future and unfortunately even darker times ahead for American families.” More

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      in US Politics

      Investors should prepare for worst over US presidential election

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      Opinion polls in the US have long pointed to the strong possibility of a Democratic party sweep in the election on 3 November, with Joe Biden winning the presidency and Democrats gaining control of the US Senate and holding on to the House of Representatives, putting an end to divided government.
      But if the election turns out to be mostly a referendum on Donald Trump, Democrats might win just the White House while failing to retake the Senate. And one cannot rule out the possibility of Donald Trump navigating a narrow path to an electoral college victory, and of Republicans holding on to the Senate, thus reproducing the status quo.
      More ominous is the prospect of a long-contested result, with both sides refusing to concede as they wage ugly legal and political battles in the courts, through the media, and on the streets. In the contested 2000 election, it took until 12 December for the matter to be decided: the supreme court ruled in favour of George W Bush, and his Democratic opponent, Al Gore, gracefully conceded. Rattled by the political uncertainty, the stock market during this period fell by more than 7%. This time, the uncertainty could last for much longer – perhaps even months – implying serious risks for the markets.
      This nightmare scenario must be taken seriously, even if it currently seems unlikely. While Biden has consistently led in the polls, so, too, had Hillary Clinton on the eve of the 2016 election. It remains to be seen if there will be a slight surge in “shy” swing-state Trump voters who are unwilling to reveal their true preferences to pollsters.
      Moreover, as in 2016, massive disinformation campaigns (foreign and domestic) are under way. US authorities have warned that Russia, China, Iran and other hostile foreign powers are actively trying to influence the election and cast doubt on the legitimacy of the balloting process. Trolls and bots are flooding social media with conspiracy theories, fake news, deep fakes and misinformation. Trump and some of his fellow Republicans have embraced lunatic conspiracy theories such as QAnon and signalled their tacit support of white supremacist groups. In many Republican-controlled states, governors and other public officials are openly deploying dirty tricks to suppress the votes of Democratic-leaning cohorts.
      On top of all this, Trump has repeatedly claimed – falsely – that mail-in ballots cannot be trusted, because he anticipates that Democrats will comprise a disproportionate share of those not voting in person (as a pandemic-era precaution). He also has refused to say that he will relinquish power if he loses and has instead given a wink and a nod to right-wing militias (“stand back and stand by”) that have already been sowing chaos in the streets and plotting acts of domestic terrorism. If Trump loses and resorts to claiming that the election was rigged, violence and civil strife could be highly likely.
      Indeed, if the initial reported results on election night do not immediately indicate a sweep for the Democrats, Trump would almost certainly declare victory in battleground states before all mail-in ballots have been counted. Republican operatives already have plans to suspend the counting in key states by challenging such ballots’ validity. They will be waging these legal battles in Republican-controlled state capitals, local and federal courts stacked with Trump-appointed judges, a supreme court with a 6-3 conservative majority and a House of Representatives where, in the event of an electoral college draw, Republicans hold the majority of state delegations.
      At the same time, all of the white armed militias currently “standing by” could take to the streets to foment violence and chaos. The goal would be to provoke leftist counterviolence, giving Trump a pretext to invoke the Insurrection Act and deploy federal law enforcement or the US military to restore “law and order” (as he has previously threatened to do). With this endgame apparently in mind, the Trump administration has already designated several major Democratic-led cities as “anarchist hubs” that may need to be put down. In other words, Trump and his cronies have made clear that they will use any means necessary to steal the election; and, given the wide range of tools at the executive branch’s disposal, they could succeed if early election results are close, rather than showing a clear Biden sweep.
      [embedded content]
      To be sure, if early results on election night show Biden with a strong lead even in traditionally Republican states such as North Carolina, Florida or Texas, Trump would find it much harder to contest the result for more than a few days, and he would concede sooner. The problem is that anything short of a clear Biden landslide will leave an opening for Trump (and the foreign governments supporting him) to muddy the waters with chaos and disinformation as they manoeuvre to shift the final decision to more sympathetic venues such as the courts.
      This degree of political instability could trigger a major risk-off episode in financial markets at a time when the economy is already slowing and the near-term prospects for additional policy stimulus remain grim. If an election dispute drags on – perhaps into early next year – stock prices could fall by as much as 10%, government bond yields would decline (though they are already quite low), and the global flight to safety would push gold prices higher. Usually in this type of scenario the US dollar would strengthen; but, because this particular episode would have been triggered by US-based political chaos, capital might actually flee from the dollar, leaving it weaker.
      One thing is certain: a highly contested election would cause further damage to the US’s global image as an exemplar of democracy and the rule of law, eroding its soft power. Particularly over the past four years, the country has increasingly come to be regarded as a political mess. While hoping that the chaotic outcomes outlined above do not come to pass – polls still show a strong lead for Biden – investors should be preparing for the worst, not only on election day but in the weeks and months thereafter.
      • Nouriel Roubini is professor of economics at New York University’s Stern School of Business. He has worked for the International Monetary Fund, the US Federal Reserve and the World Bank.
      © Project Syndicate More

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      in US Politics

      US blocking selection of Ngozi Okonjo-Iweala to be next head of WTO

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      The US is blocking the appointment of Ngozi Okonjo-Iweala as the next head of the World Trade Organization despite the former finance minister of Nigeria winning the overwhelming backing of the WTO’s 164 members, it has emerged.
      Dr Okonjo-Iweala had moved a step closer to becoming the first woman and the first African to be director of the global trade watchdog after securing the support of a key group of trade ambassadors in Geneva. Soundings taken by a selection panel of three WTO trade ministers found she had far more support than her South Korean rival, Yoo Myung-hee.
      Sources said Okonjo-Iweala was backed by countries in the Caribbean, Africa, the European Union, China, Japan and Australia.
      However, her candidacy failed to win the support of Washington, which raised last-minute objections to the process by which the new director general was being picked. An original list of eight candidates, which included the former Britishinternational trade secretary Liam Fox, has been whittled down to a final two since the summer.
      By tradition, the WTO chooses its director general by consensus, with all 164 members having to approve a candidate. The US has been unhappy with the way the WTO has operated for some time, objecting to China’s designation as a developing country and blocking the appointment of new judges to the organisation’s appeals body.
      Sources said it was unclear whether Washington’s opposition to Okonjo-Iweala was a deliberate attempt to sabotage an organisation much criticised by Donald Trump.
      A WTO spokesman said her candidacy would be put to a meeting of the body’s governing general council on 9 November, adding that there was likely to be “frenzied activity” in the meantime to secure consensus.
      In the event that Washington maintains it will not support Okonjo-Iweala, the WTO’s constitution does eventually provide for a vote, although every previous director general in the organisation’s 25-year history has been appointed by consensus, and trade experts said life would be difficult if an appointment was made against the wishes of the US.
      [embedded content]
      Sources in Geneva said it was possible the US position may be affected by the result of next week’s presidential election, which Joe Biden is currently expected to win.
      A spokesperson for Okonjo-Iweala said: “Dr Ngozi is immensely humbled to receive the backing of the WTO’s selection committee today.
      “Dr Ngozi looks forward to the general council on 9 November when the committee will recommend her appointment as director-general. A swift conclusion to the process will allow members to begin work together, on the urgent challenges and priorities.” More

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      in World Politics

      What the US Election Means for the Liberal World Order

      by

      In 1992, Francis Fukuyama published his controversial best-seller, “The End of History and the Last Man,” arguing that liberal democracy is the final form of government for all nations. Almost three decades later, G. John Ikenberry, one of the most influential theorists of liberal internationalism today, in “A World Safe for Democracy” suggests that the liberal world order, if reformed and reimagined, remains possibly the best “international space” for democracies to flourish and prosper. After all, reasons Ikenberry, what do its illiberal challengers like China or Russia have to offer?

      Apart from outside challengers, the liberal international order’s project is threatened from the inside as well. In fact, both populist parties and technocracies in a variety of forms and shapes represent a growing threat not only to the rule of law, party politics and parliamentary democracy, but to the international order tout court. Ikenberry considers the COVID-19 pandemic as the moment possibly marking the end of the liberal world order, specifically the spring of 2020, “when the United States and its allies, facing the gravest public health threat and economic catastrophe of the postwar era, could not even agree on a simple communiqué of common cause.”

      360˚ Context: The 2020 US Election Explained

      READ MORE

      However, Ikenberry admits that “the chaos of the coronavirus pandemic engulfing the world these days is only exposing and accelerating what was already happening for years.” As the COVID-19 pandemic risks to mark the end of the world liberal order, will the upcoming US election represent the last call for the existing system or what still remains of it?

      A Brief History of the Liberal World Order

      The liberal world order was forged in the aftermath of the Second World War upon a set of principles governing the international system. Based on the leadership of the United States and exerted through five core institutions — the UN, the International Monetary Fund, the World Bank, the World Trade Organization and NATO — with all its limits and weaknesses, granted economic development and security to a significant part of the world during the Cold War. Free market societies, supported by strong welfare policies, produced a long-term yet fragile balance between instances of economic competition, social inclusion and cohesion.

      The dynamic worked well until the 1980s, when the foresightedness of preserving such a fragile balance gradually vanished. Liberal premises (equality of opportunities) and liberal promises (a more equal, peaceful and wealthy world) have been subverted by neoliberal politics and economic ideological positions, regressive and anti-progressivist in nature.

      Today, a neoliberal world order has almost replaced the liberal one, bringing with it the opening of the markets through economic privatization, financialization and deregulation that results in national governments unable to shield citizens from social inequality deriving from unregulated globalization. Neoliberal politics and technocracies, often by taking advantage of emergencies and crises, have produced financial bubbles and rising economic inequality. This has taken place in light of an abstract intellectual orthodoxy, often reduced in opening international markets even if detrimental to social order, as argued, among others, by Joseph Stiglitz.

      These days, the majority of the mass media points to radical-right populism and nationalism as the main threat to liberal democracy and its “international space.” In fact, the mainstreaming of the radical right has become an international phenomenon, with radical-right and nationalist parties experiencing growing electoral support among the middle classes globally. Yet Donald Trump, Matteo Salvini, Marine Le Pen & Co are not the only threat: A new balance between state sovereignty and the coordinative action of international institutions is paramount to saving the international liberal order.

      If we want liberal democracies to escape a Scylla and Charybdis’ kind of dilemma, such as having to choose between the trivialization of politics proposed by populists or the gray hyper-complexity of technocratic governance, it is key to point out elements of convergence, different from the status quo and envisioning a general interest — not the sum of particular interests — to change non-cooperative behavior.

      Everything’s Not Lost

      From abandoning the World Health Organization (WHO) in the middle of a global pandemic to the signing of the Abraham Accords and openly flirting with right-wing extremists and white supremacists like the Proud Boys or QAnon adherents, President Donald Trump’s radical and populist rule has given up on multilateralism for a chaotic and opportunistic unilateralism. Trump has galvanized radical and far-right nationalist and populist parties worldwide, while his administration’s lack of interest in multilateral governance, in times of increasingly global nature of the issues policymakers are called to deal with, has implied both the weakening of the international order and the risk of handing it over to authoritarian challengers.

      Paradoxically, some of those challengers, particularly China, have now even recognized that international institutions and organizations such as the WHO, with all their shortcomings, do have a comparative advantage in confronting global trends such as pandemics, climate change or large-scale migration.

      However, on the other side of the Atlantic, old historic allies, in particular Germany, have not given up on the possibility to resume multilateralism with the US, as recently argued, among others, by Max Bergmann on Social Europe and Peter Wittig in Foreign Affairs. While the Trump administration jeopardized decades of liberal international order, transatlantic relations and multilateralism, Germany kept fighting to keep it alive. Germany’s Zivilmacht — civilian power, to use Hanns Maull’s formulation — even if often expressed internationally in geoeconomic terms, with key business partnerships established with China or Russia, has never allowed business interests to undermine its regional and international commitments.

      Embed from Getty Images

      Chancellor Angela Merkel has demonstrated leadership in the recent poisoning of Alexei Navalny, Russia’s key opposition figure, or when forced to act unilaterally during the 2015 refugee crisis, providing leadership by example to reluctant EU member states despite being heavily criticized at home, or in the case of the €750-billion ($821-billion) EU recovery fund, produced in close partnership with France. These crises made Angela Merkel the most trusted leader worldwide (and, for the time being, without a political heir), holding that spot since 2017, when Trump succeeded Barack Obama as US president, according to PEW research surveys. This trust was even more confirmed during the COVID-19 pandemic, with Germany’s leadership considered most favorably in relation to the US, France, China, UK and Russia.

      As we await the 2020 US presidential election, we should not forget one lesson: In a globalized world, crises can be unique occasions to rediscover the mistreated virtues of multilateralism and collective decision-making. A victory for Donald Trump next week would translate into a coup de grace for the liberal world order, as countries as Germany will not be able to take on America’s role as global leader, in particular if other European Union member states are neither able nor willing to join their efforts.

      If Joe Biden enters the Oval Office next January, there is a chance for the liberal system to survive, but it would require both bold vision and reforms, as suggested by Ikenberry. However, if globalization keeps increasing financialization and deregulation, only a simulacrum of the liberal world order will remain.

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

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      in World Politics

      The Indian Government Is Not Letting a Pandemic Go to Waste

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      Indian culture venerates tools of trade. Indeed, a special day in the festival calendar is dedicated to worshiping them. In this context, tractors and farm implements are considered almost sacred. Burning a tractor is one of the most symbolic forms of protest. Members of the main opposition party decided to engage in precisely this act. They recently burned a tractor in the high-security zone of India Gate in New Delhi.

      Why Are the Indian and Chinese Economies Decoupling?

      READ MORE

      As per the World Bank, 41.5% of Indians are employed in agriculture. Another 20% are dependent on it. This has implications for Indian politics. Support of farmers is critical to winning elections. Agriculture is to India what the military-industrial complex is to the US. Politicians promise goodies and operate elaborate patronage systems in rural India to secure votes.

      The chaos, unruliness and terrible state of Indian cities can partly be explained by the disproportionate doling out of subsidies to rural areas. This leaves little money for urban infrastructure, which is almost invariably ramshackle across the country. Most state governments in India are headed by rural politicians. Even Karnataka, which is home to Bengaluru, the information technology capital of the country, is no exception.

      The Biggest Reform Since 1991

      With such powerful vested interests, hinting at reform is a tall proposition. The Bharatiya Janata Party (BJP) government led by Prime Minister Narendra Modi has done the unthinkable. It has dismantled state control over agricultural markets. Opposition parties are protesting because they represent rural power brokers who are deeply upset. By freeing farmers from such power brokers, the Modi government has ushered in a brave new era both for Indian politics and the economy. 

      A little bit of context is essential to understand the true implications of this move. Until now, farmers were forced to sell their produce to agricultural produce market committees (APMCs). They are dominated by rural politicians and local bigwigs who exploit farmers. For decades, farmers got pitiably low amounts while consumers paid ridiculously high prices. The middlemen who run APMCs pocketed the difference.

      At a time when GDP has been shrinking and COVID-19 has been barely tackled, the Modi-led government has introduced the most significant economic reforms since 1991. In that historic year when the US fought Iraq in the Gulf War and the Soviet Union fell, India liberalized its economy and ushered in an era of high growth. The liberalization of agricultural markets will boost farm incomes significantly. With about 60% of India’s population reliant on agriculture and allied activities, this move will increase domestic demand and bolster Modi’s political base. In addition to this, Modi is also pioneering a scheme inspired by Peruvian economist Hernando De Soto’s work that seeks to better define the property rights of the farmers.

      Other Major Measures

      Apart from agricultural liberalization, the Modi government has instituted other far-reaching reforms. It has simplified longstanding labor laws that held back manufacturing. The Modi government has also curbed the flow of foreign funding into India’s nonprofits. Many of them have been opponents of the Modi government and its policies. Now, these nonprofits stand weakened, leaving the BJP in a stronger position.

      Another development has strengthened the BJP. For decades, Bollywood has been a bastion for opponents of the ruling party. Recently, the film industry has been in trouble. The death of a small-town actor has put the spotlight on nepotism and corruption in Bollywood. Some key figures are now under investigation. As a result, Bollywood’s criticism of the BJP has become muted in some quarters but more strident in others. Bollywood’s target is a section of the media that it deems to be sympathetic to the BJP’s brand of politics.

      Embed from Getty Images

      Such is the BJP’s domination that its ambitious legislative agenda has escaped public scrutiny and effective opposition. In June, these authors sent out a brief that explained how the ruling party needed just seven more members of parliament to control the 245-member Rajya Sabha, the upper house of the parliament. Now, the BJP has achieved that control and its MPs are ramming through reforms their party deems fit.

      Foreign correspondents working for big media outlets in New Delhi who frequent the Khan Market have failed to understand the major implications of recent moves. The Modi-led government has embarked on a new chapter. The legislative reforms it is pushing through are ambitious, far-reaching and potentially transformative. While COVID-19 is ravaging the country and China is making threatening moves on its border, India has bet boldly on big reforms. The BJP might reap a rich political harvest as a result.

      Yet even as it seems all smooth sailing for the BJP, the ruling party faces a big risk. Voters expect it to govern well. So far, several key reforms and policy initiatives have failed miserably. India’s colonial-era bureaucracy has built toilets and opened bank accounts because these did not threaten its power. In contrast, measures that threatened bureaucratic privilege, such as manufacturing reforms or indirect tax reforms, have been quietly scuttled.

      If India’s powerful bureaucracy tries similar tricks with the latest set of reforms, the ambitious Modi government might finally turn on the purveyors of red tape themselves.

      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

      Stock Market America is booming. So is Unemployment America | Lloyd Green

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      The chasm between the two Americas – “Unemployment America” and “Stock Market America” – made starkly visible this spring, has not disappeared. Instead, the divide has widened.America’s stock indexes have weathered the pandemic; the country’s job markets less so. On Thursday, the labor department reported nearly 900,000 new unemployment claims and Columbia University announced that 8 million Americans had fallen into poverty since May.Meanwhile, the number of Covid-19 cases continues to climb, the Affordable Care Act stands in legal jeopardy, and Amy Coney Barrett, the president’s latest pick for the supreme court, will not tell us if she believes that Medicare and social security pass constitutional muster. The New Deal may yet be undone.On that score, language that soothed the White House and Republicans may come back to haunt them at the ballot box. According to polls, older voters are prepared to vote for Joe Biden, a Democrat, in a marked departure from elections past.Donald Trump, not to mention many Republicans in Congress, do not seem to understand that for millions of older Americans, social security and Medicare are not nice-to-haves or cushy benefits handed out at the benevolent whims of the state. Rather, they are the earned benefits of a lifetime of work. According to US government data, social security benefits constitute about one-third of the income of the elderly, and for many even more.According to the New York Times, in February, at the same time that the Trump administration was declaring that the virus was not a big deal, the president’s top advisers tipped off the gods of the markets and the Republican donor base that the outbreak would be worse than the administration was saying publicly. Trump and his minions acted as if they believed the public could not handle the truth even as Wall Street dumped its holdings.Against that backdrop, preserving healthcare and retirement is the least they can do. But we know they won’t. Both the president and Mitch McConnell, the Senate majority leader, have spoken openly of cutting or “adjusting” entitlements. Then again, McConnell laughs about the failure of Congress to deliver Covid relief.On the campaign trail, the populist rhetoric of Trump’s 2016 campaign has given way, in 2020, to self-pity and personal resentments. The president wants us to feel his pain even as it appears that he is incapable of feeling ours. His relationship with his core supporters grows ever more asymmetric.When Trump’s refusal to wear a mask in public is taken as a sign of defiant courage, the body politic is certainly ailing. Half of Americans view their personal situations as better than they were four years ago. At the same time, however, nearly three in five voters see the country as being in worse shape than at the outset of the Trump presidency.When Trump’s refusal to wear a mask in public is taken as a sign of courage, the body politic is ailingWith nearly 220,000 people dead from the disease, the state of the Union is definitely hurting. The much touted “V”-shaped recovery is slow in coming, if it ever arrives.Don’t look to election day to bind the nation’s wounds. The realities that led to Trump’s electoral college upset are still with us.The gaps between the rural US, white evangelicals, white voters without college degrees and the rest of the country have not disappeared. Military suicides are up by a fifth and death by opioids has returned. Beyond that, the issue of immigration retains its potency.True, the president may have given his base a sense of calm but the causes of grievance have not gone away. What David Brooks once described as an idyllic urban existence, Bobos in Paradise, appears to have turned into a hell for everyone else. Expect Trumpism to live on, regardless of what happens on 3 November and the days that follow.A definitive Biden victory stands to provide the US with a president whose political legitimacy is less open to question or attack. Unlike George W Bush in 2004 or the incumbent, a Biden win would likely be accompanied by a majority of the popular vote.Beyond that, Biden does not carry Clinton-era baggage. The former vice-president is not a child of 1960. Likewise, no one has ever seriously accused the reflexively centrist “man from Scranton” of being a radical. Together, that would help lower the temperature for a bit, anyway, and that counts.The two Americas will not disappear any time soon. At most, we can at least hope for some civility, and God knows we can use it. More

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      in World Politics

      Will Laos Become a Model for China’s Economic Colonialism?

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      The small Southeast Asian nation of Laos stands out as a success story in COVID-19 control. With only 23 confirmed cases, it has gradually lifted lockdown measures. Success on the medical front, however, will not be enough to carry the country through the economic whiplash that pandemic containment had on the informal economy. Laos’ reliance on remittances from abroad is not unique in the region, and while it has thus far averted a coronavirus-induced health crisis, its economy is expected to contract, according to World Bank estimates.

      Incomes from tourism, remittances and the informal gig economy are expected to be hit hardest by the pandemic. Director general of the Laotian Department of Labor Skill Development at the Ministry of Labor and Social Welfare, Anousone Khamsingsavath, has voiced concerns about exacerbated poverty under COVID-19. Migrant workers have been returning from abroad due to evaporated opportunities, and the sudden influx of job seekers, coupled with a precarious economy, makes countries like Laos particularly susceptible to economic — and thus political — influence from outside.

      With the BRI, China Still Has a Long Road Ahead

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      Against the backdrop of the pandemic, countries whose economies are large enough to weather the storm have a unique opportunity to extend their influence vis-à-vis their smaller neighbors. A case in point: China and Laos. Earlier this year, Beijing began to build diplomatic goodwill in Vientiane by sending supplies, health advisers and medical staff, as well as offering loans and development opportunities to help Laos recover from the crisis. Existing power imbalances between the two states will likely be exacerbated, and China is well positioned to further consolidate support for its ally.

      Golden City

      China was the first country to be hit by the pandemic, and its economy, the second largest in the world, is now showing signs of recovery. Beijing has already unveiled a 3.6-trillion yuan ($506-billion) stimulus package, suggesting that China intends to continue work on its existing projects, with the Belt and Road Initiative being the crown jewel among them. As part of this initiative unveiled in 2013, China has been working to extend its land and maritime transportation networks through infrastructure built with the agreement of partner countries.

      One of the initiative’s branches that has thus far received little attention is the China-Laos railway, which stretches from Mohan, in China’s Yunnan province, to the Laotian border town of Boten, before reaching the capital, Vientiane. Once adjoining railways are complete, the segment is projected to be part of a pan-Asian network that joins Yunnan’s capital Kunming with Bangkok, Kuala Lumpur and Singapore. The project has been underway since 2016. Laos is the only landlocked country in Southeast Asia, and due to the lack of ports that can offer counterbalancing sources of income and connectivity, it is particularly dependent on Chinese investment in towns like Boten. The town was designated a special economic zone (SEZ), its casinos drawing in massive numbers of tourists from mainland China, where gambling is illegal.

      Embed from Getty Images

      Touted by both governments as a partnership of mutual prosperity, local Laotians complained of the disrespect and one-sided decision-making from the new arrivals. This was the case when casinos in Boten were shut down in 2010 by the Chinese Ministry of Foreign Affairs over accusations of crime and prostitution. The town, whose economy centered around gambling, went into decline even as construction of the railroad continued. Two years later, however, Laotian officials decided to give the original sponsor of Boten’s failed project a second chance. The sponsor partnered with another industrial group and signed a new agreement to shift the town’s focus from gambling to commerce, rechristening “Golden Boten City” as “Beautiful Boten Specific Economic Zone.”

      It is unclear whether this new venture is a result of or is intended as an extension of the railway being constructed. What is clear is that China does not intend for the BRI to be an isolated transportation framework in Boten’s case. Railway construction naturally brings an influx of Chinese laborers who prefer Chinese goods and Chinese services, but an injection of Chinese cash into the local economy could also add to the local government’s incentive to cooperate with construction. The businesses and the railway can then form an economic feedback loop that justifies each other’s existence.

      Business Model

      This business model would not be so worrying if the local Laotian government retained significant regulatory power over the venture. However, the Chinese-funded Boten Economic Zone Development and Construction Group has been given the responsibility of charging taxes and building both utility and telecommunications infrastructure. This calls into question the sovereignty of the host nation’s government, and one of the group’s buyers stationed in Boten went so far as to say the company basically controlled the entire growing city.

      SEZs like Boten may become the next model of economic colonialism in Southeast Asia, where Chinese investors lease large tracts of land for a substantial period, import Chinese workers to build infrastructure around railway stations, and create economies that cater specifically to Chinese patrons and Chinese interests. This form of colonialism doesn’t have to be directly affiliated with the Communist Party, as China has more than enough corporations with deep pockets that can withstand the risk of investment and provide the much-needed capital to rural areas whose native government do not have the means for development.

      As COVID-19 ripples through Southeast Asia, countries in the region can be expected increasingly to look abroad for any kind of financial buffer that will help them survive the economic shockwaves. Even countries like Laos that have avoided a health crisis cannot avoid suffering indirectly from the economic contractions of their less proactive neighbors. Regional governments will be tempted to grant more concessions in the hopes of bringing more jobs to locals out of work, and capital from China will be alluring, even as it inevitably comes with economic dependence and the local influence of powerful Chinese corporations.

      Developments in little-known outposts with potential, such as Boten, rarely make the headlines. But make no mistake: China was already making its way steadily through Southeast Asia, and the ongoing pandemic is only likely to increase its pace.

      *[Fair Observer is a media partner of the Young Professionals in Foreign Policy.]

      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 Boris Johnson's Cop26: ask if GDP growth is sustainable | Editorial

      by

      Saving the planet ought to be a goal for, not a cost to, humanity. Yet this insight appears lost in the discussion about the climate emergency. Last week, it emerged that the Treasury was thinking about levying a UK-wide carbon tax. This approach, it was suggested, could be sold as a way of “raising revenue while cutting emissions”. Properly targeted taxes can change behaviour. But “revenue raising” green policies invariably end up being valued by the amount of taxes they produce rather than on their effectiveness in combating the climate crisis. UK governments have frozen fuel duties for a decade because it is politically easier to rake in cash than deter driving.A carbon tax is superficially appealing. The Treasury desires taxes to offset government spending. No 10 would like to align, rhetorically, with the green agenda. But without careful thought a carbon levy could backfire. A maladroit attempt to tax fuel on environmental grounds kindled France’s gilets jaunes (yellow vests) protests.By law, Britain has to reduce its net carbon emissions to zero by 2050. To get there, life in the country will have to change. For example, for the next stage of a net-zero transition, the public should shift away from heating their homes with gas boilers. Raising taxes on voters until they squeal and switch to lower carbon intensive heating systems would not be popular or necessarily progressive. A better strategy would be for the state to finance new green technologies and to regulate energy companies to recoup the investment. The Treasury dislikes spending and then taxing. Rightwing governments resist interfering in markets. But a focus on ecological sustainability would provide a reason to act in such a way.The UK government requires an environmental sense of purpose that specifies the appropriate ends for economic activity. The economist Kate Raworth has pointed out that a failure to do so has left a gap, which politicians fill by maximising national income. They are not obliged to ask if additional economic growth is sustainable. Governments ought to confront whether the growth of real GDP is too destabilising for global ecosystems. For decades the planetary boundary for resource use has been exceeded because conventional economics has encouraged political leaders to concentrate on goals that are largely irrelevant to human welfare.A confluence of world events provides a rare opportunity to change such thinking. Owing to the pandemic, global greenhouse emissions are forecast to drop by about 5% this year, compared with 2019. If sustained this would be the largest year-to-year drop since the second world war, and it could mark a turning point. If Joe Biden wins the US presidential election the world’s top three emitters, China, the US and the EU, which account for nearly half of global emissions, should all have mid-century net-zero targets, placing the 1.5˚C warming limit of the Paris agreement within reach. Preparations for the postponed Cop26 climate summit, to be held in Glasgow, are the ideal way for Britain to take a lead in a global discussion. Boris Johnson should use the platform to frame UK policy proposals boldly in terms of their impact on people and the planet, not just the economy. More