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US-China trade war? Not likely

Payman Yazdani

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Commenting on recent the US and China tit-for-tat tariff disputes, Prof. Larry Backer says that the deep structures of economic integration cannot be undone by a series of shocks with offers of renegotiation.

As the US and China ratchet up a tit-for-tat tariff dispute, it has been said often in the last few weeks that no one wins a trade war.

The issue was discussed with Larry Backer, Professor of Law and International Affairs in Penn State University.

How will President Trump’s decision to boost tariffs impact US domestic steel and aluminum producers?

My apologies, the answer to this question will be the longest of this interview precisely because the simplest questions may pose the subtlest problems. In contrast to many experts, and others, who might be eager to provide a simple and direct answer to this simple and direct question, I can only offer complexity and contingency. At the greatest level of generalization, it is not clear, even to experts and policymakers, whether the tariff boost will have a positive or negative effect. Steel and aluminum production are now part of integrated production chains only a portion of which concerns steel and aluminum production. The idea appears to be that the tariffs will protect US based steel and aluminum production by making the import of like products more expensive—and thus US producers will substitute domestic production over foreign. That may well work for domestic production and consumption but may not work for domestic production for export—especially where other states match the tariff to equalize pricing (and reduce the foreign subsidy) that the tariff represents. And yet domestic production and consumption is an important element of US macro-economic policy and may produce positive short-term effects in terms of domestic investment and employment.

Yet the tariff discussion must also be understood within a more complex context produced by the deep embedding within global production and ownership chains. The key here is that there is no identity between the location of production (in this case steel and aluminum production) and the nationality of ownership (that is, the “citizenship” of the apex enterprise that owns or controls the steel or aluminum production chain with respect to which production might be located in any number of states). It has been reported, for example, that some US companies may be negatively affected because they are subsidiaries of foreign enterprises from which, for example they receive steel for finishing and then export. And the effect will have little to do with the nationality of the owners of steel production. Consider the irony of these tariffs if, as a result, foreign owned enterprises establish factories in the US for steel production, boosting US production while repatriating the profits of that enterprise back to the home states of parent company. That insight, in turn, produces some variations in the answer to the question you posed.

Larry Backer

First, even if the tariffs have an effect (positive or negative), it is not clear that the extent of that effect will be large. Again, the issue of tariffs can only be viewed in a vacuum within the cloistered towers of those who find such detached analysis useful for purposes of advancing policy without relation to real world effects. Thus, the amplitude of the effect may be difficult to distill apart from the ecology within which tariffs may have both direct and indirect effects.  This provides an opportunity to seek to distill effects using a variety of techniques all of which will be dependent of a set of assumptions and approaches that might well skew the results in ways that serve objectives. These effects, of course, are further complicated by the distinction between the effects on domestic production (an objective of the tariffs, of course) and the effects of the nationality of the benefits of this production. It is not clear how one deals with the situation where domestic production increases (and increases local economies) while the profits of that production are repatriated elsewhere.

Second, even if there is significant effect, it is not clear whether the effect will be generally felt or will affect different parts of the country, and different industrial sectors differently. To speak of the effects of the tariff boost generally produces an answer that aggregates effect. But aggregated effects only serve political interests, it does not reflect the reality within a large country like ours.  It is much more likely that the effects will be felt differently, positively and negatively in different parts of the country and with respect to different industries and companies. Yet that might well have been the point—to ensure a targeted boost to economic activity within specific portions of the US with the hope that this boost in activity will then have indirect effect over a broader area.

Third, the answer to the question must take into account the time horizons for change and the sectors with respect to which differing time horizons might matter. Thus, for example, to the extent that the tariff is meant to foster greater steel and aluminum production, that effect will take years to be felt in terms of actual significant increases in production. Also important here is the question whether that production can be sustained. Tariffs as subsidies may have an immediate effect on decisions to invest in production (and hire labor to aid in its production), but eventually the sector and the heightened production will have to be economically viable—especially since over the middle and long term global consumers and producers may adjust their activities to take the tariffs into account.

Fourth, on the other hand, the immediate effects of the tariffs have already been felt—not in the changes to the location of steel and aluminum production (inside or outside the US), but in the reactions of financial markets, lenders, political leaders and the like. And perhaps that is the most telling part of tariff policy in the contemporary age—tariffs appear to have greater effects on global finance than on global production, on the allocation or distribution of the placement of portions of the production of commodities (in the long term), and on its value in mobilizing mass opinion to some political end or other. In that respect, tariffs may not pose the same problems that they produced a century ago in the European inter-War period. Globalization has substantially reduced the power of tariffs precisely because the borders necessary to make them effective have been substantially eroded—and it is unlikely that they will be reconstructed in the manner of 1920s thinking.

Fifth, the impact will vary from the short to the long term. Most people may be tempted to consider the question in light of immediate or short-term impact. Indeed, global analytics have tended to increasingly favor short term thinking and reaction rather than long term or strategic responses or adjustment. And the short-term impact—politically—will be significant. One sees that already as the “usual suspects” have already aligned themselves and their media outlets to amplify their support or opposition to the tariffs, and to begin to seek to mobilize mass opinion to some end or other. Yet it is the long term strategic adjustments that are far more important and most likely to be missed by a media and analytic culture with a short attention span.

How will it actually impact the aluminum and steel industries globally then?

There are two answers here. The direct answer is that impact will be a function of the way industry and states respond. Industry might be able to avoid the effects of the tariff by strategic shifting of the operations of their global production chains to minimize the effects of the tariffs—but such adjustments might take time. States, on the other hand, are less flexible. They will either support their own industries or risk losing them. If they do not reciprocate tariffs, they might be induced to apply enough support to their industries to wash out the price effects of tariffs. The indirect answer, however, may be more important. The impact to states and enterprises will depend on the ability of both to mitigate the effects of tariffs through changes in the ownership of the producers of tariffed goods. Thus, for example, if Chinese enterprises own or can acquire (direct or indirectly) steel and aluminum production facilities in the US, the net effect of the tariff will be small. Over the long term, and in the absence of waivers from tariff, there may be a gradual shift of production—but not necessarily to the US Instead the shift may move production to other states which have successfully negotiated tariff waivers.

You’ve mentioned some of the beneficiaries behind his decision are their other internal or external beneficiaries in addition to the companies in America, or is it just wholly these American companies who are going to benefit from this decision?

What is an American company today? The notion of national companies is now essentially obsolete in a context in which most economic activity is connected to global flows of production. Companies of a variety of nationalities are organized to manage and participate in global production (in steel and aluminum and other products). The economic enterprise that tends to manage or control the process of production and the role of other enterprises within that production process tends to be characterized as the representative or incarnation of a multinational enterprise, and to lend its nationality to that system of global production. But realistically, that represents an oversimplification of the realities of production. Thus, American apex companies may benefit from the tariffs.

On the other hand, US apex companies who have invested heavily in steel and aluminum production enterprises outside the US may suffer. Conversely, a Russian or Chinese enterprise that owned steel or aluminum production facilities in the US might profit significantly from the tariffs.  Because of this quite large divide between the nationality of the place of production and the nationality of the ownership of production (up the production chain) it is difficult in many cases to point to a generalizable nationality for winners and losers.  And that is the great insight of this effort—states can control generally the production of things within their territory and use their borders to exact a cost of entry (or exit).  But that control of the consequences of production within or outside a state has absolutely nothing to say about the nationality for the beneficiaries of these policies.  If all steel production abroad is owned by US companies, then steel import tariffs would affect US companies negatively because it adds costs to their global allocation of the elements of their production chains.

How much will this decision to increase tariffs affect countries like China, Japan and South Korea then?

There are two questions here.  The first deals with reciprocal tariffs. This is a simple one—if the US raises tariffs on aluminum and steel, then other countries would seek to do the same on US steel and aluminum. Yet the impact on the US may be negligible if it is a net importer of these products. And thus, more effective may be what I might call retaliatory tariffs. Thus, if the US imposes tariffs on steel and aluminum that affects national industries elsewhere, those states might impose duties on US agricultural products or some other product in a sector where US exports are large. But in a global economy that might only produce short term pain, as those in control of production chains can, at some cost, realign their trade routes in ways that might soften the blows of tariffs. And again, where one thinks only of short term effect, one misses the essential element of a more benign long-term effect within a global context in which capital and investment still moves fairly freely. And, indeed, rather than approach the imposition of tariffs with retaliatory tariffs, China, Japan and Korea would be better off buying US: steel manufacturers, increasing production of un-tariffed steel and then exporting that commodity for finishing in their own home states.

How likely is the European Union to retaliate by imposing tariffs on US products?

This is an excellent question.  While the initial emotional response, one fanned by the global media, might have tilted toward retaliatory tariffs on vulnerable US products, that course may not be followed once tempers are calmed.  The principle reason for this is that the Trump Administration has made it clear that it would entertain bilateral negotiations on waivers of tariffs.  This is not a small matter.  Indeed, one can see in this Tariff imposition-negotiated waiver approach an essential feature of the Trump Administration’s movement away from its old approach of globalized system building multilateralism to the new America First Initiative. Thus, consider the dynamics of the tariff imposition in context.  The United States has commenced building its own trade network in a manner that links up with the US enterprise’s management or control of certain production chains.

That requires a reorienting of trade relations from a multilateral form without a center to an aggregated bilateral form with the US at the center.  To effect this reorientation of the foundations of trade the US must first re-center its position in global trade networks (not all of them but those of vital interest or with respect to which there is an ambition). To that end, certain shocks are necessary. These include withdrawal form multilateral agreements (including Paris and TPP) and the disruption of old free trade alignments. But mere withdrawal does not produce re-centering—the offer to renegotiate the terms of bilateral relations (and in the process restore relations or waive action) is the driving element of realignment. At the end of the process, if carried out systematically and with a clear long term vision, the US might well produce a trading system that looks substantially the same as the Chinese One Belt One Road Initiative. If that is the case, then the future of global trade is not manifested in tariffs, but through these tariff and other shocks, a new global trade system, built around control of production chains, will emerge in which most roads lead either to Washington, or to Beijing.

Will Mr. Trump’s acts result in a trade war between the US and world’s other economic powers? What can be the consequences of such possible war for world?

No trade war is likely. The deep structures of economic integration cannot be undone by a series of shocks with offers of renegotiation. And trade war does not seem to be the intent (though one must disregard certain of the President’s tweets to acquire assurance on that point). And America First Initiative is not the same as the isolationist policies adopted from near the end of the 1920s—it is rather the reverse, the effort to encourage muscular expansion but now oriented from key home states, rather than by building a community of similarly situated actors all competing in the global markets for engagement with portions of emerging production chains. And indeed, while the ineptitude of national leaders might, through comedies of errors and personal vanity, move key states toward trade wars, the result would not further state power. Trade wars are particularly dangerous in contemporary politics precisely because they would produce two types of instability. First, trade wars would produce instability among the lower reaches of production chains. Those states would suffer substantial impacts in employment that would lead to political unrest, and more likely substantial migration that would then destabilize neighbors and eventually the apex states to which migration will flow, particularly in the West. Second, trade wars would destabilize apex nations as well. The stability of the political orders in the United States and China depend in large part on the fulfillment of a promise of a baseline economic prosperity. Where that disappears then both states might well be subject to the vagaries of populism which, though it might not overthrow either’s system in a formal sense, would substantially corrupt them.

The US and the Europeans cooperation after world war was based on trade, security and military regimes like NATO. Don’t you think possible trade war between the US and Europe can spill over other security and military fields, too?

I agree, of course, that a trade war would spill over to other vectors of state to state relations. But only suicidal states and mad leaders without substantial popular or institutional checks, could possibly move the US-EU relationship dangerously in that direction. The US and its European allies have had tiffs and have made grand gestures of disapproval against each other with some regularity since the 1960s. One need only remember the antics of Charles De Gaulle (quite effective both within Europe and in the effect on NATO relations). And in any case, the bad behavior of states on the periphery of the US-EU “entente” may ensure the strength of the core alliance militarily and work against economic policy foolishness.

Rising of rightist in Europe is a threat to the future of the EU and from the other side this can result in more independent trade relation without the EU considerations. Considering this fact how do you see the future of EU?

Many people fear the ghosts of the past, and even more people believe that it is important to fight past battles over and over.  But like the analogy with the trade wars of the 1920s, analogies with the rise of fascist movements in Europe in the 1930s may be misapplied in this case. Yes, indeed, the ultra-right movements have risen again after several generations of muscular suppression in Europe, and ridicule (effective) in the US But that suppression, in part, might well have contributed to the re-emergence of the virus of right wing extremism in the face of a largely unchecked left wing extremism that has tended to be the darling of the political and intellectual sets in the US and Europe since the great social rebellions of 1968.

That cultural moment plays differently in Eastern Europe, of course, and produces a return to the comforts of authoritarian nationalism that can easily be characterized as either left or right to suit the agenda of the commentator. At some point balance must be restored, of course, or the EU will flounder. And that may be likely in the medium term. For the moment, however, the rise of rightists as against an unchecked culture of leftism may produce the sort of instability that marked the early Weimar Republic. But at its base, the EU is suffering a version of 2nd generation malaise. The rising elite never experienced the trauma that produced European solidarity in the face of a half century during which Europe virtually committed suicide. They do not know hunger, and fear, nor do they worry about the penetration of larger powers to undermine their own autonomy and independence (those are worries left for the detritus of empire). And thus, they can indulge the privilege of dismissing the institutional structures on which their own prosperity and security are based. To that end, indeed, it is not the rise of the right, but the effects of ennui, that may have a substantial deleterious effect on the solidity of the EU.

The US also recently imposed tariffs and other measures against the People’s Republic of China.  Do you see the possibility of a trade war or more adversarial relations between the US and China with respect to trade issues?

I would suggest that the recent and very quick tariff exchange between the United States and the People’s Republic of China illustrates the character of these tariff moves by the Trump Administration and the way that they have been received once governments finish producing the appropriate responses required for public consumption by their internal and external audiences. Consider what happened when in mid-March 2018 President Trump moved to levy tariffs on up to $60 billion of Chinese imports, in addition to those imposed on solar panels, steel and aluminum. Initially, the Chinese reacted aggressively and publicly in the expected way, utilizing all of their networks to aid in that effort. The Chinese indicated an intention to levy tariffs on about $3 billion of US imports, including soybeans or aircraft, major trade goods.

The effect was immediate—global financial markets fell dramatically over the course of a week. Yet, after the necessary public drama, one discovered that the tariffs imposed on both sides appeared to serve as an invitation for both the US and China to begin to renegotiate their trade relations. The Americans sent a letter indicating the changes that they sought in the wake of the tariff impositions, with an emphasis on trade and intellectual property issues, including what for the US amounted to coercive technology and know-how transfer rules. Premier Li Keqiang spoke publicly about the need for China and the United States to continue negotiations and reiterated pledges to better open their internal markets and perhaps to target purchases of specified US goods. Negotiations continue.

When news leaked of those steps, global markets responded appropriately. And thus one can begin to see the contours of the way in which tariffs have become an instrument rather than the objective of trade policy. The US may now use tariffs as a critically important tool in the reframing of US trade policy in the form of the “America First” Initiative. The object is not to destroy trade—the US President and his advisors have been very clear about that (it is only that people have chosen not to listen)—but to reframe the basis of the global trading system from the forms that emerged after the 2nd World War to a new form whose characteristics will be shaped both by the Chinese One Belt One Road Initiative and its American counterpart, the “America First” Initiative.

It was the Iranian leadership itself which almost a decade ago pointed to the end of the post-World War II era and its structures.  Few paid attention at the time.  That was a pity. For it seems that in retrospect they were correct and that the global community will continue to see manifestations of the new system emerge as the first order powers realign their visions, reach accommodations with each other and reorder the hierarchies of power and production for the first part of this century.

First published in our partner Mehr News Agency

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Economy

Uber & the Neoliberal State

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Everyday in my local papers, I read stories with headlines like “Subway Ridership Dropped Again in New York as Passengers Flee to Uber.”  AMNY, in its daily Tweet compilation section, generally devotes at least half of its selections to posts bashing the subway and bus system.  In the midst of the hangover that was last week’s Uber IPO (in which it immediately lost 8% of its value), it would be appropriate to contemplate the intersection of Uber (and its ugly stepsister Lyft) and the government.

In the shadow of the Great Depression and WWII, under the Administrations of the multimillionaire Franklin Roosevelt and the no-nonsense Republican Dwight Eisenhower, the federal government invested the equivalent of football fields full of cash on infrastructure projects like the Interstate Highway System (which cost half a trillion in today’s dollars).  States and cities likewise undertook great transportation schemes.  Between the 1920s and 1960s, Robert Moses funded 413 mi. of parkways and 13 bridges for NYC through, among other things, local tolls. 

This spirit of investing in the mobility of American citizens and goods gradually died off with the rise of neoliberalism in the 1970s and 1980s; federal spending for transportation infrastructure spending has been in decline since Lyndon Johnson’s Great Society.  The sea change was most spectacularly evidenced on Oct 22 1981, when President Reagan fired and blacklisted 11,345 striking federal air traffic controllers. Cue to the present… The American Society of Civil Engineers has given America’s infrastructure a dismal grade of D+ since 2013.  Trump on the 2016 campaign trail said that, “Our airports are like from a third world country.”

Governmental abdication in regards to public transportation has created a vacuum that the private sector is now trying to fill. This is problematic for many reasons. Bereft of the full-time employee status and union membership of public transit employees, Uber and Lyft drivers, as “independent contractors”, are treated like sharecroppers, with no minimum wage or pension/healthcare plans.  Infrastructure underfunding leads to lost opportunities for construction companies and their suppliers, which costs the economy money and jobs.  Uber and Lyft, by contrast, contribute nothing to the roads, tunnels and bridges that they use, other than tolls and the income that they don’t shield via elaborate tax evasion schemes… That and a nearly threefold increase in congestion, which hurts shipping and personal drivers’ commutes. Safety laws are frequently broken by Uber and its drivers, who undergo nothing more than a basic background screening, and receive no substantive training, prior to being hired.  The secluded, close-quarters nature of the rideshare template has led to many incidences of sexual assault and harassment for drivers and riders alike (by contrast, bus and yellow-cab drivers are generally shielded from their clients by bulletproof glass).

The privatization of transit also creates a commuter caste system, in which affluent citizens can spend $20 on a quick Uber ride to work, while poorer people must rely on perpetually-delayed trains, anxiously waiting on train platforms that are often literally falling apart due to neglect.  This problem extends far beyond rideshare apps.  For years, Elon Musk has been unsuccessfully trying to sell various municipalities on the concept of the experimental hyperloop, a pricier, less efficient version of a subway.  Hyperloop trains of the future will supposedly be able to travel at 700 mph… but they can only carry 28 people at a time!  So Musk wants cities to potentially invest billions to construct underground tunnel networks that only a couple hundred people a day max would be able to use, let alone afford, considering the pricy ticket fees that would probably be necessary in order to generate electricity for the hyperloop’s futuristic maglev-vacuum operating system.  Bullet trains also operate on a maglev system, but the cost gets spread out to over a thousand customers per trip, instead of just 28.  Emulating Musk, fellow billionaire Jeff Bezos just unveiled his space exploration company Blue Origin’s lunar lander prototype.  The fact that NASA is, due to chronic underfunding, being outpaced by Blue Origin and Elon Musk’s SpaceX, is not only a national disgrace, but a matter of concern for the welfare of humanity as a whole.  If space travel becomes monopolized by a handful of billionaires, it could eventually lead to the scenario envisioned by sci-fi dystopias like Elysium, wherein only the rich will be allowed to escape our dying planet, while the poor masses are left behind.

In regards to public transportation (and many other fields), the US is quickly falling behind China.  The Middle Kingdom has over 19,000 mi. of high-speed rail (much of it built just this past decade); the US has just 2% of that total and much of it is contained to an old NYC-DC Acela line that is woefully obsolete. Eight new airports get built in China every year, meaning that China’s total stockpile of airports will double by 2035.  The last American international airport was built last century and many existing airports, like the infamous LaGuardia, are falling apart due to underfunding.  The nation famous for its cyclists also boasts the world’s largest elevated bike lane; by contrast, bike lanes are a very controversial issue in American cities, where its staunch-individualist detractors decry them as Communist plots.

This growing disparity is being fuelled by the two nation’s different appropriations models.  China realizes the importance of central planning in regards to major infrastructure projects.  Investing in high-speed rail might not be “profitable” if measured solely by ticket revenue, but it pays for itself in the long-term by spurring urban development, construction contracts and employment, and increased tax revenues from workers now able to access better jobs and commerce.  Not to mention that traffic accidents, often the result of crumbling and obsolete road infrastructure, is the #8 cause of fatalities worldwide, including 32,000 a year in the US.  The American mindset is more myopic, focused only on short-term viability for investors.  This was encapsulated by Trump’s infrastructure plan, which focused on subsidies for corporations and localities… the same model that has been failing America’s infrastructure for decades.

It’s clear that the Uber-ization of public transportation is an inadequate and unsustainable solution.  The corporate model is solely predicated on short-term growth and the exploitation of its workforce.  In order to keep up with fellow superpower China, the US must take a centralized approach to maintaining and upgrading its faltering subways, trains, airports, bridges, roads and waterways.  Roosevelt’s Works Progress Administration employed about 9M Americans in the construction of some of the world’s most successful infrastructure projects, such as 29,000 new bridges, at the height of the US’ greatest financial crisis. People like Bernie Sanders and Alexandria Ocasio-Cortez are looking to emulate this past success by enacting a Green New Deal, which would employ millions of Americans in constructing sustainable infrastructure.  Likewise, it would be a boon for construction firms, industrial goods suppliers like Caterpillar, shipping-oriented companies like Amazon and urban-based businesses as a whole.  America must invest itself, in its people, in its future.

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Convergence Of Competitive Markets And Indian Elections

Joseph Abraham

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If competition is a key component of a flourishing economy, it is equally true that competition in electoral politics and elections is a powerful force for the healthy growth of a vibrant democracy enhancing legitimacy of political parties and their responsiveness to the aspirations of the electorate.

Viewed from the Indian perspective, there is a striking identity between the rights of consumers in the free market economy and the rights of voters in our political democracy. Equally noteworthy is the identity of the fundamental principles governing the rule of law in the free market system, the institutional arrangements for safeguarding consumer rights and the rule of law of elections and the regulatory environment for monitoring the functioning of a free and fair electoral democracy. The free market system ensures the best available goods and services are offered to the consumer at the optimal price following the principles of free market competition without restrictive and unfair trade practices enforced through the Consumer Protection Act1986 and the Competition Act 2002. 

 In the democratic system, the voters are given the right to elect the best available persons as people’s representatives through conducting elections in a free and fair manner which forms the bedrock of democracy. This is ensured by the Election Commission through the enforcement of the Guidelines of Model Code of Conduct for political parties and candidates during elections mainly with respect to speeches, polling day, polling booths, portfolios, election manifestos, processions and general conduct. Thus, while the role of a Referee in the free market system in India is played by the Consumer Disputes Redressal Forum and Competition Commission of India, the rules of  free and fair elections in  political democracy are enforced by the Election Commission of India.    

In a market economy, competition facilitates a host of benefits: awareness and market penetration, higher quality at same prices, increase in demand and consumption through competitive pricing, product differentiation, upgradation and innovation, improvements in efficiency of production at optimal levels by minimising cost and losses and increasing customer service and satisfaction. Competition in politics and elections elevates the voter to a pivotal role in democracy as that given to the consumer in a market driven economy. Electoral candidates vie for votes by promising reforms such as better governance, greater socio-economic equity and positive measures for poverty alleviation.

Each political party through its campaigns, manifesto and other propaganda machinery strives hard to win the maximum number of voters in electoral democracy transforming it as a political free market system with fierce competition  between the players similar to the efforts of sellers in the  free market economy to attract the maximum number of customers.

A   free market system across the globe,  is characterised by the existence of not only the  most efficient firms but also several  inefficient ones who are unable to produce the best quality goods and services  at lowest prices and even  those resorting to fraudulent ,  restrictive and unfair trade practices. Similarly, in political democracy and elections around the world,  besides politicians and parties with high degree of integrity and democratic values, there are those with criminal records, adopting ideologies prejudiced by notions of  race,  caste, colour, gender and religion based politics, and those charged with allegations of vote buying etc. which continues to undermine the democratic process.

Consumer Rights in a Free Market Economy

In India,  the interests of the  consumer in the market economy from restrictive, unfair and anti-competitive trade practices by firms  is safeguarded through several strong legal provisions which inter alia includes  the enactment of the  Consumer Protection Act 1986  and the Competition Act 2002. In addition, consumers rights in the economy are further protected through The Indian Contract Act, 1872, The Sale of Goods Act, of 1930 and  The Agriculture produce Act of 1937.   This is further strengthened by the establishment of supportive quasi-judicial institutional arrangements i.e the Consumer Disputes Redressal Commission at the National, State and District level as well as the Competition Commission of India.

The main objective of the competition law of India is to promote economic efficiency using competition as one of the means of assisting the creation of market responsive to consumer preferences. The advantages of perfect competition are three-fold: allocative efficiency which ensures that costs of production are kept at a minimum and dynamic efficiency which promotes innovative practices.

To achieve its objectives, the Competition Commission of India endeavours to do the following:

  • Make the markets work for the benefit and welfare of consumers
  • Ensure fair and healthy competition in economic activities in the country for faster and inclusive growth and development of the economy.
  • Implement competition policies with an aim to effectuate the most efficient utilization of economic resources.
  • Develop and nurture effective relations and interactions with sectoral regulators to ensure smooth alignment of sectoral regulatory laws in tandem with the competition law.
  • Effectively carry out competition advocacy and spread the information on benefits of competition among all stakeholders to establish and nurture completion culture in Indian economy.

Voters Rights in a Political Democracy

As a free market economy cannot sustain consumer rights without supportive legal and institutional framework, there is little doubt that for the survival of a free and fair democracy, the rule of law should prevail and it is necessary that the best available persons should be chosen as people’s representatives for proper governance of the country (Gadakh Yashwantrao Kankararao v Balasaheb Vikhepati lAIR 1994 SC 678). India isa sovereign, socialist, secular democratic republic. Democracy is one of the inalienable basic features of the Constitution of India and forms parts of its basic structure (Kesavanand Bharati v State of Kerala and Others AIR 1973 SC 1461). The concept of democracy, as visualised by the Constitution, pre-supposes the representation of the people in Parliament and State Legislatures by the method of election (N.P.Punnuswami v Returning Officer Namakka lAIR 1952 SC 64).

 Accordingly, in India,  in the  realm of political democracy and elections, the interests of the voters and electorate  is safeguarded through the Constitution of India,  Representation  of the People’s Act 1950 and 1951,Presidential and Vice Presidential Elections Rules 1974, Registration of Electors Rules 1960 and Conduct of Elections Rules 1961.

In India, the above legal provisions of elections and voting under political democracy    are administered and further supplemented by the Election Commission’s directions and instructions on all aspects. The underlying principle of  parliamentary democracy enforced by the Election Commission of India  is to ensure free and fair elections for which there are three pre-requisites: (1) an authority to conduct these elections, which should be insulated from political and executive interference, (2) set of laws which should govern the conduct of elections and in accordance whereof the authority charged with the responsibility of conducting these elections should hold them, and (3) a mechanism whereby all doubts and disputes arising in connection with these elections should be resolved. The Constitution of Indi has paid due attention to all these imperatives and duly provided for all the three matters.

The Constitution has created an independent Election Commission of India in which vest the superintendence, direction and control of preparation of electoral rolls for, and conduct of elections to, the officers of president and Vice President of India and Parliament and State Legislatures (Article 324). A similar independent constitutional authority has been created for conduct of elections to municipalities, panchayats and other local bodies (Articles 243 K and 243 ZA) along with legal and institutional provisions for  settlement of disputes relating to elections.

Model Code of Conduct in India

Election Commission of India  has laid down a set of guidelines for conduct of political parties and candidate during elections. The main points of code of conduct are:

  1. The government may not lay any new ground for projects or public initiatives once the Model Code of Conduct comes into force.
  2. Government bodies are not to participate in any recruitment process during the electoral process.
  3. The contesting candidates and their campaigners must respect the home life of their rivals and should not disturb them by holding road shows or demonstrations in front of their houses. 
  4. The election campaign rallies and road shows must not hinder the road traffic.
  5. Candidates are asked to refrain from distributing liquor to voters.
  6. The Code hinders the government or ruling party leaders from launching new welfare programmes like construction of roads, provision of drinking water facilities etc or any ribbon-cutting ceremonies.
  7. The code instructs that public spaces like meeting grounds, helipads, government guest houses and bungalows should be equally shared among the contesting candidates. These public spaces should not be monopolized by a few candidates.
  8. On polling day, all political party candidates should cooperate with the  poll-duty officials at the voting booths for an orderly voting process. Candidates should not display their election symbols near and around the poll booths on the polling day. No one should enter the booths without a valid pass from the Election Commission.
  9. There will be poll observers to who any complaints can be reported or submitted.
  10. The ruling party should not use its seat of power for the campaign purposes.
  11. The ruling party ministers should not make any ad-hoc appointment of officials, which may influence the voters in favour of the party in power.
  12. Before using loud speakers during their poll campaigning, candidates and political parties must obtain permission or license from the local authorities. The candidates should inform the local police for conducting election rallies to enable the police authorities to make required security arrangements. 

Conclusion

In a wider sense, both free markets and democratic elections are run on the basis of a set of rules with respective regulatory bodies enforcing the rules of the game. While there is a strong element of political centralization in the decision making process of elections, free market system is tilted more towards the principle of economic decentralisation. However, the consumer and the voter whose rights are legally and institutionally safeguarded remain as the principal beneficiaries of both systems- the economic and political. Thus free markets and democracy have identical underlying objectives of maximising welfare of the people. The convergence of the political economy of free markets and elections therefore highlights the democratic principles governing the welfare of citizens.

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Euro – 20 years on: Who won and who lost?

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The common European currency – the euro – came into being 20 years ago. Since January 1, 1999, the euro has been widely used in cashless money transfers. On January 1, 2002, banknotes and coins were introduced into circulation. How did the European countries benefit from the single currency? How many profited from its introduction?

In the early 1990s, the European Community entered a new stage of development which was characterized by a transition to a higher level of integration within it and expansion to include more members. This was provided by the Treaty on European Union, which was signed on February 7, 1992 in the Dutch city of Maastricht and entered into force on November 1, 1993. The Maastricht agreements and the subsequent decisions of the EU’s governing bodies – the European Council and the Council of the EU –formed a groundwork for a gradual, stage-by-stage creation of a monetary union and the introduction of a single currency, the euro.

At the time the decision on the introduction of the euro came into effect it was believed that the main objectives of the transition to a single monetary policy and the replacement of national banknotes with a single European one were the following. First of all, a monetary union was supposed to put the finishing touches to the formation of a common market and was to transform the EU territory into an economic space with equal opportunities for all players. A single currency was expected to facilitate the transition of the EU to a common economic policy, which, in turn, was seen as indispensable for moving to a new level of political integration. Many also viewed a single currency as vital for cementing European integration and a symbol of the economic and political integrity of the region. It was assumed that the euro would keep European countries “in the same harness” even in times of crisis and would help them to overcome differences and even resist outbursts of nationalism.

The second goal was to prevent losses caused by continuous fluctuations in the rates of Western European currencies. Once the euro was established, risk payments for possible losses in different-currency transactions became a thing of the past. It was assumed that stable and low interest rates would bring down inflation and stimulate economic growth. Thirdly, it was thought that fixed exchange rates within the euro zone with no more fluctuations would boost investment activity and, as a result, would improve the situation on the labor market. In addition, a better economic performance was to make it easier for countries to enter the EU and adapt to the new reality. A better economic performance was supposed to make European products more competitive in world markets.

Fourth, a single currency was supposed to significantly cut circulation costs. At the end of the 1990s, the existence of various national currencies cost the EU countries 20-25 billion ECU (26-33 billion dollars) annually, including the cost of keeping records of currency transactions, insuring currency risks, conducting exchange operations, drawing up the price lists in various currencies, etc. Finally, fifthly, the initiators of the single currency hoped that the euro would become one of the international reserve currencies. The introduction of the euro was supposed to change the balance of strength between the United States and united Europe in favor of the latter. In the long run, it boiled down to ensuring more independence of the EU economic policy since interest rates on long-term loans would be less dependent on American ones.

What is happening at present? Not surprisingly, the greatest difficulties emerged  while grappling with the most pressing and large-scale agenda involving the ambitious plans of the political and economic transformation of the EU and the strengthening of its global geo-economic role. Indeed, since the late 1990s, the economic and financial spheres of the EU have undergone dramatic changes. In 2004 and 2007, the majority of Central and Eastern European countries joined the Union (an increase in social dumping). The current EU “bears little resemblance” to that of 20 years ago. “Not only the currency has become different, but the entire European economy has changed.”

Nevertheless, as predicted by those who criticized the approved version of transition to a single European currency, chances for meeting the criteria of eurozone membership in case the global economy followed an unfavorable scenario are pretty slim for most countries of the eurozone. As economic and financial crises sweep Europe one after another, the presence of the euro and the unprecedentedly high level of the European Central Bank’s autonomy and its extensive powers are restricted by the “possibility of influencing the economy” of separate states. Since inflation rates vary from country to country, the interest rate suggested by the ECB (about 2%) turns out to be too low for countries with high inflation (which leads to financial bubbles) and too high for countries with low inflation (which has a negative impact on investments).

As a result, the economic slowdown in European economies in the 2000s through 2010s led to increases in budget deficits. According to the requirements of the eurozone, governments have to raise taxes or cut spending, even if it damages national economy. Formally, there exists a procedure to tackle economic upheavals in this or that country of the eurozone to minimize their consequences for other members. From the point of view of abstract macroeconomic indicators this procedure is functioning well. But, judging by what happened in Spain, and then in Greece and Italy, its social, economic and subsequently, political costs are too high. In the first place, we talk about social upheavals, which became one the main reasons for the rise of “right-wing populists” across Europe.

The euro is running into problems mainly because it hinges on politics, rather than economics. On the one hand, it is this that largely keeps it from the collapse. The EU leadership is ready to sustain any financial or economic losses to preserve the single currency.  However, from the economic viewpoint, the ECB’s readiness for currency interventions has ruined market discipline. In March this year the German Wirtschafts Woche stated that the euro had failed to become either an effective currency or an EU stability enhancing tool. What proves it is the fact that without “billions and billions in financial injections on the part of the European Central Bank and European governments to save the euro the single currency would have long sunk dead”. The 2008 financial crunch quickly triggered the crisis of the eurozone which culminated in the Greek debt crisis of 2010. As a result, “the dispute over how to save the single currency laid bare purely political differences across Europe”.

As skeptics forecast, membership in the eurozone, sought by countries with different levels of economic development regardless of the tough requirements and selection criteria, resulted in a situation in which a setback in the global economic performance hit weaker members the hardest. Citing the IMF, Le Figaro points out that “the euro exchange rate is too high for France and Italy (which deals a blow on their competitiveness), and is too low for Germany (by about 20%)”.  This provided the German economy with a clear edge over other EU members and secured a “huge foreign trade proficit”. Moreover, in the course of the eurozone crisis in 2009 there emerged a vicious circle: Germany’s domineering position in the EU enabled Berlin to dictate its policy of austere budgetary measures to the greater part of the rest of Europe, which, in turn, gave rise to an outburst of anti-German sentiment in a whole range of countries, including Greece and Italy.

Therefore, in 20 years of its existence the euro has made Germany yet more powerful economically than it used to be. Simultaneously, it has become a major factor that contributed to Germany’s isolation in Europe. Critics say that while drafting the euro project its authors meant to weaken Germany. Instead, the single currency “strengthened it, providing it with competitive advantages through a “weak” euro”. Central Europe has become a supplier of spare parts for German businesses thereby putting into practice the Mitteleuropa Doctrine in the 21st century. The rest of the EU countries have become a market for German goods. Meanwhile, Germany has to pay for economic failures of an ever greater number of its EU partners. In such a way, Germany’s economic might has all but become a major threat to European integration. Pessimists fear the current economic and geopolitical trends will sooner or later push the Germans into pursuing a more “egoistic” and “aggressive” policy, in every sense of the word. Everyone remembers what this kind of policy ended with in a period from the mid19th to the mid20th century.

As for the second and third points of the objectives of a single currency, the results are contradictory. Inflation in the eurozone is indeed at an all-time low. There has occurred a unification of the common market of goods, capitals and workforce. At the same time, measures which are being taken by the European Central Bank to fight low inflation have more than once driven a number of EU countries into recession and sovereign debt crises. Living standards in EU countries have not been growing steadily over the past few years. A rise in wages has turned out to be much smaller than predicted in the late 1990s.  Most European banks still prefer holding debt obligations of their countries only, which, in case of financial crisis, is fraught with banking problems and could ruin national economy. As for competitiveness, the appearance of a single market “in the first place, aggravated competition between  EU countries”. Simultaneously, the introduction of the same standards and requirements for all countries of the eurozone “cemented their differences, rather than brought them together”.

The fourth point can be considered fully implemented. Economic transactions have been simplified, cost less and have got rid of exchange-related risks. According to the British The Economist, three out of five residents of eurozone countries consider the euro useful for their country. And 75% of Europeans are sure that the single currency benefits the EU. Meanwhile, the removal of barriers to capital movements has led to a significant imbalance in investments, especially in the industrial sector. The main benefits went to countries located in the center of the EU while the geographical “periphery” of the eurozone has lost some of its former investment attractiveness. But the presence of the euro makes it impossible for the less fortunate countries to stimulate the economy by bringing down the currency value.

As for the fifth point, some of the ambitious plans have been implemented. The euro has already made a significant contribution to the weakening of the position of the US dollar in the global economy. According to the European Commission, one-fifth of the world’s currency reserves are denominated in the single European currency. “340 million citizens use it daily, 60 countries and territories link their currency to it”. On the other hand, 10 years of 20 years of its history the eurozone has devoted to the struggle against an “unprecedented crisis”. By now, experts say there has been a “fragile recovery.” Nevertheless, unlike its main competitors, the dollar and the yuan, the euro has no solid foundation. The EU budget is used mainly for paying subsidies to member countries, while the years-long disputes over prospects for creating a common EU ministry of finance all but fuel differences between 19 eurozone governments.

Thus, according to optimists, criticism of the euro is first of all the result of profound differences on the fundamental issues of European economic policy. The single currency consolidated the leaders of Europe, provided them with the common goal of creating a more integrated, a more attractive for trade and business, and a globally competitive, economy. However, a further stable existence of a single currency mechanism in Europe calls for urgent reforms, which European politicians are either not ready for or are not capable of. According to critics, the single currency has driven the different economies of the EU countries into the Procrustean bed of all-fitting standard format. The single currency mechanism completely ignores, if not completely denies, the geographical, historical and cultural specifics of the member states. Overall, the current model of economic and monetary integration in the EU mindlessly forces countries whose national economies do not match the general format “to carry out endless reforms,” which all but aggravate their long-standing inherent problems.

 First published in our partner International Affairs

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