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Environmentalism: A Slippery Slope of Ignorance and Hypocrisy

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Perusing through my morning news digest, I came across an article from The Daily Mail featuring a story on the employment of child labor in cobalt mines in the Democratic Republic of Congo (DRC).

While I can be chillingly apathetic to social plight, especially, when it doesn’t concern my loved ones: something I impute to my upbringing in a third world country; I was deeply moved by this story, which shed light on the horrors of artisanal cobalt mining, employing children, working in dangerous conditions, with no safety measures, and being paid a pittance.

The kicker, though, of this story was that much of this cobalt would go into battery packs that would be installed in electric cars marketed to gullible, do-gooders around the world.

But, why would one want to buy cars that take hours to refuel and can only be refueled at specific points, thus, imposing a massive time cost on their usage? These contraptions don’t match in utility to gasoline-powered cars, let alone surpassing them. No wonder governments around the world are trying to get consumers to buy electric cars through purchase subsidies and tax exemptions of all sorts.

Ever heard of an iPhone or a Mac being subsidized or tax exempted by the government to boost sales? You won’t because products that offer value sell like hotcakes; it’s only products that don’t offer any that need government interventions to hard sell them.

Another way of hard selling electric vehicles is through ‘virtue signaling.’ The sales pitch involves promises of reducing users’ carbon footprint, stemming the tide of climate change, and protecting the environment. But most importantly, it involves washing your hands off of gasoline, a product bloodstained due to the endless wars fought over it, one of the major promulgators of environmental and social injustice and displacement of indigenous folks.

Buying electric cars is thus, a route to salvation, accumulating good Karma, penitence, and all other moral goods. More importantly, it is also a way of segregating oneself from the ranks of the ignorant, irredeemable, hopeless, uneducated folks who drive around in gasoline powered vehicles polluting the environment, melting the ice caps, perpetuating wars and injustice, and pushing the world one step closer to Armageddon. Electric cars make the do-gooders feel good about themselves.

But are electric cars the solution to environmental problems and a way to jack up one’s moral credit score?

Most electric cars run on Lithium-ion batteries because of their energy holding capacity and low-weight characteristics. As environmentalism garners mainstream acceptance and more and more people buy into its narrative, the market for these vehicles is exploding and so is the demand for Lithium-ion batteries.

Contrary to the name, Lithium-ion batteries contain not just lithium, but also cobalt, nickel, manganese, aluminum, and graphite. While nickel, manganese, and aluminum have a relatively stable supply, it is cobalt, lithium, and graphite that present predicaments that are incompatible with the narrative of environmentalism.

Most of the lithium used in electric car batteries is mined in the Lithium triangle of Latin America: an area embedded in the salt flats of Argentina, Chile, and Bolivia. Several mining companies from around the world have started operations in this region, but the news for the indigenous people isn’t good. Lithium is so valuable that it has been dubbed ‘white gold,’ but the local residents bemoan that they haven’t seen any returns from the mining operations flowing their way; despite the fact that the prized mineral comes from lands that are under their possession.

A lack of formal process to negotiate property rights between the indigenous peoples and the mining companies, compounded by lack of accountability and communication gaps has left the communities short-changed. Many indigenous representatives, who excitedly agreed to the mining operations, now regret as they grapple with reality.

One of the companies – Exar – that will begin operations in 2019 is projected to reap $250 million (in 2016 dollars) annually. The contract also requires Exar to make annual payments to the local communities – a clause that the official leader of these communities wasn’t aware of, until one of the reporters investigating the issue, enlightened him.

More worrisome than missing out on the windfall is the fear of water depletion from sources that the local communities depend upon for their survival. Scientists seem divided on this contentious issue. Regardless, locals are justified in their concerns over water, as lithium mining is a water intensive process and the region has faced persistent drought over several years.

The Democratic Republic of Congo (DRC), an impoverished country in sub-Saharan Africa, contributes to around 60% of the global supply of cobalt, an essential element in the Lithium-ion battery.

The state of affairs of the artisanal cobalt mines of DRC was the subject of an extensive article in The Washington Post. Miners, of whom children make a significant portion (about 40,000 according to UNICEF in 2012), work in unforgiving and dangerous conditions with hand tools, no safety measures, and very little oversight. Mining accidents and related deaths are common and so are the long-term health effects of coming in contact with heavy metals.

While the DRC has both industrial and artisanal mines, suppliers prefer cobalt from the latter due to the lower cost, especially when global cobalt demand is on the uptick. A major hurdle in disincentivizing artisanal operations is the inability of cobalt to be designated as ‘conflict-mineral,’ as it doesn’t fuel a war or internal conflict.

China’s record on air quality hasn’t been lustrous, with widely circulating reports of smog engulfing its major cities. But the residents of some towns in north-eastern China, much to their despair, literally get to see a special kind of luster in the air at night, when faint light hits graphite particles floating in the air.

Graphite is an indispensible element in Lithium-ion batteries and its growing global demand has lead to China’s rise as the top supplier in the market.

The Washington Post, about a year ago, published a detailed report on the effects of Chinese graphite plants on nearby villages. The presence of graphite dust on crops and in the air presents the likelihood of this toxic substance being ingested or inhaled leading to heart and lung diseases. Locals have also complained of graphite plants releasing industrial waste into nearby rivers, polluting the local water supply. This has significant effects, not only on the human population, but also on the flora that grows around these water bodies.

According to The Post, their efforts to get major firms in the consumer electronics and electric vehicles business to comment on these revelations in their supply chains were met with generic responses of appeasement or refusal to disclose suppliers or complete silence.

But, investigative reports aside, there are two big elephants in the room. First, electric cars can deliver on their claim of reducing carbon footprint, only if they are run on electricity generated from renewable energy. That seems unlikely given that only around 15% of total US electricity generation is from renewable sources (2016); the picture does look brighter across the Atlantic in the EU-28, where renewable sources produced around 29% of total electricity (2015).

The second problem is slightly complex and involves a weighing of the total fossil-fuel based energy and products that go into producing electric cars (from mining to assembly line), including individual components, against the purported energy savings and environmental benefits. In the grand scheme of things, it’s highly unlikely that electric cars will produce a net good or that they will fare any better than regular cars.

Another embarrassing problem for the Church of Environmentalism is the hypocrisy of its clergy. Al Gore, the patron saint of the green movement, according to a recent report, lives in a house that in the past year burned enough energy to power a typical American household for 21 years. Just the outdoor heated swimming pool ended up consuming energy that could power 6 typical homes. This was revealed after the release of his new documentary film, “An Inconvenient Sequel: Truth to Power,” which has him fly over melting icebergs in an aircraft running on petroleum-derivative fuel.

But Gore claims that his donations to Green Power Switch, a scheme to separate green-minded folks from their money, purge him of his sins towards Mother Nature.

Actor-turned-environmentalist Leonardo DiCaprio made headlines when he made a round trip from France to New York to accept a ‘green award.’ The close to 8000-mile long journey, completed on a private jet, didn’t please the environmental laity. But worry not because his charitable foundation, in 2016, pledged £10 million to various green initiatives.

Environmentalism, thus, is nothing but a way to feel good about yourself, to wash off the supposed sins of driving around in a gasoline powered car and using incandescent light bulbs. It’s also a great way to make bucket loads of money and undertake lucrative career transitions.

I don’t mean to suggest that oil drilling and petroleum products are good for the environment and don’t bear any social costs. They might, but they don’t push a holier-than-thou narrative and actually have to undergo strict environmental and health and safety audits, something that is lacking in the supply chain of green products.

An ex-dentist and a business graduate who is greatly influenced by American conservatism and western values. Having born and brought up in a non-western, third world country, he provides an ‘outside-in’ view on western values. As a budding writer and analyst, he is very much stoked about western culture and looks forward to expound and learn more. Mr. Malkar receives correspondence at saurabh.malkar[at]gmail.com. To read his 140-character commentary on Twitter, follow him at @saurabh_malkar

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Economy

Rebalancing Act: China’s 2022 Outlook

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Authors: Ibrahim Chowdhury, Ekaterine T. Vashakmadze and Li Yusha

After a strong rebound last year, the world economy is entering a challenging 2022. The advanced economies have recovered rapidly thanks to big stimulus packages and rapid progress with vaccination, but many developing countries continue to struggle.

The spread of new variants amid large inequalities in vaccination rates, elevated food and commodity prices, volatile asset markets, the prospect of policy tightening in the United States and other advanced economies, and continued geopolitical tensions provide a challenging backdrop for developing countries, as the World Bank’s Global Economic Prospects report published today highlights.

The global context will also weigh on China’s outlook in 2022, by dampening export performance, a key growth driver last year. Following a strong 8 percent cyclical rebound in 2021, the World Bank expects growth in China to slow to 5.1 percent in 2022, closer to its potential — the sustainable growth rate of output at full capacity.

Indeed, growth in the second half of 2021 was below this level, and so our forecast assumes a modest amount of policy loosening. Although we expect momentum to pick up, our outlook is subject to domestic in addition to global downside risks. Renewed domestic COVID-19 outbreaks, including the new Omicron variant and other highly transmittable variants, could require more broad-based and longer-lasting restrictions, leading to larger disruptions in economic activity. A severe and prolonged downturn in the real estate sector could have significant economy-wide reverberations.

In the face of these headwinds, China’s policymakers should nonetheless keep a steady hand. Our latest China Economic Update argues that the old playbook of boosting domestic demand through investment-led stimulus will merely exacerbate risks in the real estate sector and reap increasingly lower returns as China’s stock of public infrastructure approaches its saturation point.

Instead, to achieve sustained growth, China needs to stick to the challenging path of rebalancing its economy along three dimensions: first, the shift from external demand to domestic demand and from investment and industry-led growth to greater reliance on consumption and services; second, a greater role for markets and the private sector in driving innovation and the allocation of capital and talent; and third, the transition from a high to a low-carbon economy.

None of these rebalancing acts are easy. However, as the China Economic Update points out, structural reforms could help reduce the trade-offs involved in transitioning to a new path of high-quality growth.

First, fiscal reforms could aim to create a more progressive tax system while boosting social safety nets and spending on health and education. This would help lower precautionary household savings and thereby support the rebalancing toward domestic consumption, while also reducing income inequality among households.

Second, following tightening anti-monopoly provisions aimed at digital platforms, and a range of restrictions imposed on online consumer services, the authorities could consider shifting their attention to remaining barriers to market competition more broadly to spur innovation and productivity growth.

A further opening-up of the protected services sector, for example, could improve access to high-quality services and support the rebalancing toward high-value service jobs (a special focus of the World Bank report). Eliminating remaining restrictions on labor mobility by abolishing the hukou, China’s system of household registration, for all urban areas would equally support the growth of vibrant service economies in China’s largest cities.

Third, the wider use of carbon pricing, for example, through an expansion of the scope and tightening of the emissions trading system rules, as well power sector reforms to encourage the penetration and nationwide trade and dispatch of renewables, would not only generate environmental benefits but also contribute to China’s economic transformation to a more sustainable and innovation-based growth model.

In addition, a more robust corporate and bank resolution framework would contribute to mitigating moral hazards, thereby reducing the trade-offs between monetary policy easing and financial risk management. Addressing distortions in the access to credit — reflected in persistent spreads between private and State borrowers — could support the shift to more innovation-driven, private sector-led growth.

Productivity growth in China during the past four decades of reform and opening-up has been private-sector led. The scope for future productivity gains through the diffusion of modern technologies and practices among smaller private companies remains large. Realizing these gains will require a level playing field with State-owned enterprises.

While the latter have played an instrumental role during the pandemic to stabilize employment, deliver key services and, in some cases, close local government budget gaps, their ability to drive the next phase of growth is questionable given lower profits and productivity growth rates in the past.

In 2022, the authorities will face a significantly more challenging policy environment. They will need to remain vigilant and ready to recalibrate financial and monetary policies to ensure the difficulties in the real estate sector don’t spill over into broader economic distress. Recent policy loosening suggests the policymakers are well aware of these risks.

However, in aiming to keep growth on a steady path close to potential, they will need to be similarly alert to the risk of accumulating ever greater levels of corporate and local government debt. The transition to high-quality growth will require economic rebalancing toward consumption, services, and green investments. If the past is any guide to the future, the reliance on markets and private sector initiative is China’s best bet to achieve the required structural change swiftly and at minimum cost.

First published on China Daily, via World Bank

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The US Economic Uncertainty: Bitcoin Faces a Test of Resilience?

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Is inflation harmful? Is inflation here to stay? And are people really at a loss? These and countless other questions along the same lines dominated the first half of 2021. Many looked for alternative investments in the national bourse, while others adopted unorthodox streams. Yes, I’m talking about bitcoin. The crypto giant hit records after records since the pandemic made us question the fundamentals of our conventional economic policies. And while inflation was never far behind in registering its own mark in history, the volatility in the crypto stream was hard to deny: swiping billions of dollars in mere days in April 2021. The surge came again, however. And it will keep on coming; I have no doubt. But whether it is the end of the pandemic or the early hues of a new shade, the tumultuous relationship between traditional economic metrics and the championed cryptocurrency is about to get more interesting.

The job market is at the most confusing crossroads in recent times. The hiring rate in the US has slowed down in the past two months, with employers adding only 199,000 jobs in December. The numbers reveal that this is the second month of depressing job additions compared to an average of more than 500,000 jobs added each month throughout 2021. More concerning is that economists had predicted an estimated 400,000 jobs additions last month. Nonetheless, according to the US Bureau of Labour Statistics, the unemployment rate has ticked down to 3.9% – the first time since the pre-pandemic level of 3.5% reported in February 2020. Analytically speaking, US employment has returned to pre-pandemic levels, yet businesses are still looking for more employees. The leverage, therefore, lies with the labor: reportedly (on average) every two employees have three positions available.

The ‘Great Resignation,’ a coinage for the new phenomenon, underscores this unique leverage of job selection. Sectors with low-wage positions like retail and hospitality face a labor shortage as people are better-positioned to bargain for higher wages. Thus, while wages are rising, quitting rates are record high simultaneously. According to recent job reports, an estimated 4.5 million workers quit their jobs in November alone. Given that this data got collected before the surge of the Omicron variant, the picture is about to worsen.

While wages are rising, employment is no longer in the dumps. People are quitting but not to invest stimulus cheques. Instead, they are resigning to negotiate better-paying jobs: forcing the businesses to hike prices and fueling inflation. Thus, despite high earnings, the budget for consumption [represented by the Consumer Price Index (CPI)] is rising at a rate of 6.8% (reported in November 2021). Naturally, bitcoin investment is not likely to bloom at levels rivaling the last two years. However, a downfall is imminent if inflation persists.

The US Federal Reserve sweats caution about searing gains in prices and soaring wage figures. And it appears that the fed is weighing its options to wind up its asset purchase program and hike interest rates. In March 2020, the fed started buying $40 billion worth of Mortgage-backed securities and $80 billion worth of government bonds (T-bills). However, a 19% increase in average house prices and a four-decade-high level of inflation is more than they bargained. Thus, the fed officials have been rooting for an expedited normalization of the monetary policy: further bolstered by the job reports indicating falling unemployment and rising wages. In recent months, the fed purview has dramatically shifted from its dovish sentiments: expecting no rate hike till 2023 to taper talks alongside three rate hikes in 2022.

Bitcoin now faces a volatile passage in the forthcoming months. While the disappointing job data and Omicron concerns could nudge the ball in its favor, the chances are that a depressive phase is yet to ensue. According to crypto-analysts, the bitcoin is technically oversold i.e. mostly devoid of impulsive investors and dominated by long-term holders. Since November, the bitcoin has dropped from the record high of $69,000 by almost 40%: moving in the $40,000-$41,000 range. Analysts believe that since bitcoin acts as a proxy for liquidity, any liquidity shortage could push the market into a mass sellout. Mr. Alex Krüger, the founder of Aike Capital, a New York-based asset management firm, stated: “Crypto assets are at the furthest end of the risk curve.” He further added: “[Therefore] since they had benefited from the Fed’s “extraordinarily lax monetary policy,” it should suffice to say that they would [also] suffer as an “unexpectedly tighter” policy shifts money into safer asset classes.” In simpler terms, a loose monetary policy and a deluge of stimulus payments cushioned the meteoric rise in bitcoin valuation as a hedge against inflation. That mechanism would also plummet the market with a sudden hawkish shift.

The situation is dire for most industries. Job participation levels are still low as workers are on the sidelines either because of the Omicron concern or lack of child support. In case of a rate hike, businesses would be forced to push against the wages to accommodate affordability in consumer prices. For bitcoin, the investment would stay dormant. However, any inflationary surprises could bring about an early tightening of the policy: spelling doom for the crypto market. The market now expects the job data to worsen while inflation to rise at 7.1% through December in the US inflation data (to be reported on Wednesday). Any higher than the forecasted figure alongside uncertainty imbued by the new variant could spark a downward spiral in bitcoin – probably pushing the asset below the $25000 mark.

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Platform Modernisation: What the US Treasury Sanctions Review Is All About

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Image source: home.treasury.gov

The US Treasury has released an overview of its sanctions policy. It outlines key principles for making the restrictive US measures more effective. The revision of the sanctions policy was announced at the beginning of Joe Biden’s presidential term. The new review can be considered one of the results of this work. At the same time, it is difficult to find signs of qualitative changes in the US administration’s approach to sanctions in the document. Rather, it is about upgrading an existing platform.

Sanctions are understood as economic and financial restrictions that make it possible to harm the enemies of the United States, prevent or hinder their actions, and send them a clear political signal. The text reproduces the usual “behavioural” understanding of sanctions. They are viewed as a means of influencing the behaviour of foreign players whose actions threaten the security or contradict the national interests of the United States. The review also defines the institutional structure of the sanctions policy. According to the document, it includes the Treasury, the State Department, and the National Security Council. The Treasury plays the role of the leading executor of the sanctions policy, and the State Department and the NSS determine the political direction of their application, despite the fact that the State Department itself is also responsible for the implementation of a number of sanctions programmes. This line also includes the Department of Justice, which uses coercive measures against violators of the US sanctions regime.

Interestingly, the Department of Commerce is not mentioned among the institutions. The review focuses only on a specific segment of the sanctions policy that is implemented by the Treasury. However, it is the Treasury that is currently at the forefront of the application of restrictive measures. A significant part of the executive orders of the President of the United States and sanctions laws imply blocking financial sanctions in the form of an asset freeze and a ban on transactions with individuals and organisations. Decrees and laws assign the application of such measures to the Treasury in cooperation with the Department of State and the Attorney General. Therefore, the institutional link mentioned in the review reflects the spirit and letter of a significant array of US regulations concerning sanctions. The Department of Commerce and its Bureau of Industry and Security are responsible for a different segment of the sanctions policy, which does not diminish its importance. Export controls can cause a lot of trouble for individual countries and companies.

Another notable part of the review concerns possible obstacles to the effective implementation of US sanctions. These include, among other things, the efforts of the opponents of the United States to change the global financial architecture, reducing the share of the dollar in the national settlements of both opponents and some allies of the United States.

Indeed, such major powers as Russia and China have seriously considered the risks of being involved in a global American-centric financial system.

The course towards the sovereignty of national financial systems and settlements with foreign countries is largely justified by the risk of sanctions.

Russia, for example, is vigorously pursuing the development of a National Payment System, as well as a Financial Messaging System. There has been a cautious but consistent policy of reducing the share of the dollar in external settlements. China, which has much greater economic potential, is building systems of “internal and external circulation”. Even the European Union has embarked on an increase in the role of the euro, taking into account the risk of secondary sanctions from “third countries”, which are often understood between the lines as the United States.

Digital currencies and new payment technologies also pose a threat to the effectiveness of sanctions. Moreover, here the players can be both large powers and many other states and non-state structures. It is interesting that digital currencies at a certain stage may present a common challenge to the United States, Russia, China, the EU and a number of other countries. After all, they can be used not only to circumvent sanctions, but also, for example, to finance terrorism or in money laundering. However, the review does not mention such common interests.

The text does propose measures to modernise the sanctions policy. The first one is to build sanctions into the broader context of US foreign policy. Sanctions are not important in and of themselves, but as part of a broader palette of policy instruments. The second measure is to strengthen interdepartmental coordination in the application of sanctions in parallel with increased coordination of US sanctions with the actions of American allies. The third measure is a more accurate calibration of sanctions in order to avoid humanitarian damage, as well as damage to American business. The fourth measure is to improve the enforceability and clarity of the sanctions policy. Here we can talk about both the legal uncertainty of some decrees and laws, and about an adequate understanding of the sanctions programmes on the part of business. Finally, fifth is the improvement and development of the Treasury-based sanctions apparatus, including investments in technology, staff training and infrastructure.

All these measures can hardly be called new. Experts have long recommended the use of sanctions in combination with other instruments, as well as improved inter-agency coordination. The coordination of sanctions with allies has escalated due to a number of unilateral steps taken by the Trump Administration, including withdrawal from the Iranian nuclear deal or sanctions against Nord Stream 2. However, the very importance of such coordination has not been questioned in the past and has even been reflected in American legislation (Iran). The need for a clearer understanding of sanctions policy has also been long overdue. Its relevance is illustrated, among other things, by the large number of unintentional violations of the US sanctions regime by American and foreign businesses. The problem of overcompliance is also relevant, when companies refuse transactions even when they are allowed. The reason is the fear of possible coercive measures by the US authorities. Finally, improving the sanctioning apparatus is also a long-standing topic. In particular, expanding the resources of the Administration in the application of sanctions was recommended by the US Audit Office in a 2019 report.

The US Treasury review suggests that no signs of an easing are foreseen for the key targets of US sanctions. At the same time, American business and its many foreign counterparties can benefit from the modernisation of the US sanctions policy. Legal certainty can reduce excess compliance as well as help avoid associated losses.

From our partner RIAC

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