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Harbingers of global economic crisis

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The upcoming global and financial crisis has been much talked about in the world, but what no one is talking about is how to avoid this crisis, survive it or, most importantly, what to do next. Neither is anyone pointing to the erratic approach to ensuring a smoothly working global economic system that actually made this crisis inevitable.

Karl Marx is one of the thinkers who analyzed the systemic crisis of capitalism and devised a universal theory as a way of solving this crisis. Adapted to the national and religious specifics of various countries, this theory to a large extent determined the logic of the revolutionary socialist movements of the late-19th and early-20th century. However, does Karl Marx’s method of analyzing the nature of classical capitalism remain relevant today? Do we know about economics today more than Karl Marx did back in the 19th century or less? These are the questions experts taking part in the recent meeting of the Zinovyev Club in Moscow tried to answer.

Marx’s Precursors and Marxism: globalism, anti-globalism, and the “End of History”

Oleg Matveichev, a prominent political analyst, philosopher and professor of the Higher School of Economics Research University, spoke about Karl Marx’s predecessors, whose legacy must be analyzed because their thoughts about the nature of capitalism inspired Marx to devote his whole life to the study of its workings.

The first such precursor was Immanuel Kant. Even though he never wrote about economics per se, many of his writings give us an insight into his views on the economy. Oleg Matveichev calls the Konigsberg-based thinker one of the first globalists. And with good reason too, since many apologists of modern globalization never miss a chance to quote, almost word for word, Kant’s essay “Towards Eternal Peace,” while often failing to reflect on its original source.

According to Kant, the true reason for a state’s existence is to defend itself from outside enemies, and the genuine task of free states is to liberate others. Paradoxically, this connects directly to George Soros via Karl Popper, the founder of the “open society” theory.

Oleg Matveichev believes that Karl Popper was weaned on the ideas of neo-Kantianism, but while borrowing ethical issues from Kant, he carried them over to epistemology. According to Immanuel Kant, moral maxims are subject to categorical and hypothetical imperatives. This is exactly how Karl Popper theorized about science when he said that we only put forward hypotheses in our knowledge, and if so, these hypotheses should be falsified. Kant categorically rejected all sorts of planning and attempts to build a paradise on earth. Popper had no doubt whatsoever in the finiteness of any system and human design.

Although Johann Gottlieb Fichte was a direct adherent of Kant’s theory, he substantially revised the legacy of his predecessor. In his “Discourses on the Tendencies of the Modern Epoch,” Fichte argued that Kant was mistaken in defining the tendencies of modern-day globalization as a desire for eternal peace and the formation of a single space and a super-state. Conversely, while during the Middle Ages the Holy Roman Empire of the German nation was a prototype of a single Christian state, this has since given way to the creation of “nation states” with nationalism and separation becoming the main trends of this day and age.

In his work “The Closed Commercial State,” Fichte actually comes out as the founder of anti-globalism. His ideas had a strong impact on the great German economist Friedrich List, an ardent advocate of economic protectionism, who regarded a planned economy and state monopoly of foreign trade as key to a country’s success in the world.

To make this happen, it is necessary to calculate the number of people producing material “wealth,” then of the class of Nature-transforming “artists” as well as of managers, old people and children. At the same time, the trade balance should not be upset either way, since overdependence on imports will lead to a situation where outside players dictate their will to the country. Excessive dependence on exports is equally bad, as it is fraught with the loss of foreign markets and increased unemployment. Fichte proposed the concept of ownership of activity instead of ownership of things. Also, unlike Emmanuel Kant, who was an advocate of universal publicity, Fichte embraced the idea of keeping state secrets.

Unlike his predecessors, Georg Friedrich Wilhelm Hegel, once a believer in Adam Smith’s theory, left behind a trove of works related to economic activity. To better understand his logic, one should read his oeuvre, titled “Phenomenology of the Spirit,” especially the part about the so-called “master-and-slave” dialectic. This would also explain how Karl Marx, who in his early years was fascinated by Hegel’s philosophy, found his place in the great Hegelian system.

According to Hegel, there are two types of self-awareness that have clashed throughout the course of history, and only the one ready to defend its rightfulness to the last has prevailed, becoming the “master”. Because slaves are not allowed to fight, they labor on, while their masters wage war. This is the fundamental principle of a feudal society. However, the process of the master’s degradation eventually becomes increasingly evident since, according to Hegel, “he has nothing to do with the product, does not process it, and does not feel Nature’s dependent status.” Conversely, the slave, who processes Nature, is gradually becoming his own master. The result is a sort of a coup which, however, does not change the whole matrix.

It will do so only when the master realizes that as long as he owns a slave he is not master in the true sense of the word. As soon as the tendency towards universal liberation sets in, the “master-and-slave” dialectic dies out ushering in the end of history. According to Hegel, the more civilized European nations (including the Germanic ones) will bring about the end of history, which can last forever. This logic brings us  to the legacy of Francis Fukuyama, who, at the close of the 20th century, devised his concept of the “end of history,” based on the writings of the Russian neo-Hegelian émigré thinker Alexander Kozhev.

Karl Marx, for his part, argues that “the end of history” Hegel wrote about is somewhat premature – simply because what Hegel had in mind was only the political liberation of man, while economic domination hasn’t gone anywhere.  The end of history (Communism) will come only after the economic imbalance between people has been eliminated as a result of a politico-economic revolution. Here Karl Marx was drawing, in part, on the legacy of Fichte, and the criticism that Kantians leveled against him at the time, were leveled against Marxists in the 20th century, including by Friedrich von Hayek who, just like Popper, believed in the finiteness of any human design and of any cycles of economic and social activity.

Modern economics and the relevance of Marxism

Is the Marxist dialectic relevant today? According to Higher School of Economics Professor Dmitry Yevstafyev, an economic theory hinges on two parameters: time (today, tomorrow, the day after tomorrow) and space (private, sectoral, regional, or universal).

People usually think about economic theory when a new economic crisis is looming but hasn’t actually struck yet, and that the tension being felt on the global, regional and national level has not yet found its way out. Marxism as a theory stems from disputes swirling around the central question of the latter part of the 19th century: “Where will classical industrial capitalism go from now?” This explains the longevity of this theory, which gained so much prominence in the 20th century.

Dmitry Yevstafyev regards the current economic space as a non-linear and multi-vector one. Almost every serious analyst agrees that the existing economic system is teetering precariously on the brink of a massive global economic crisis, the consequences of which will be highly unpredictable, but most likely dire nonetheless. And here Marx’s theory, especially its economic part, can do little to help since it is extremely linear. It was an attempt to characterize the economic mainstream of that time, though a unidirectional, single-vector one, which implied no significant derivatives or deviations. That being said, Karl Marx did acknowledge, however, the multilateral nature of the economic development of his day and age. It was with this understanding in mind that he introduced the term “Asian mode of production,” which gave rise to a discussion that became a major headache for Soviet philosophers and political economists.

According to Yevstafyev, the linear nature of Karl Marx’s teaching will limit the possibilities of using this methodology in the future. On the other hand, it is hard to deny the fact that in modern economic science vulgarization of liberal approaches in the economy and fetishization of numerical indicators has reached the point of absurdity. Economists often try to present a holistic picture of global progress based on individual economic indicators. It should be noted here that mathematical liberalism was relevant when the process of globalization was on the rise. However, with the globalization area shrinking as it has done the past few years, very serious problems arise.

Could the methodology that Karl Marx used to characterize the 19th century capitalism and Vladimir Lenin – to describe the early-20th century capitalism, be applied to the capitalism that exists today?

Doing this would be extremely difficult since we are dealing with a very hybrid economic environment, which is greatly complicated by non-economic factors. What we are dealing with today is, in fact, a pseudo-economic system, which uses the language of liberal theories to legitimize itself.

That being said, however, classical Marxism may well be applied to new industrial countries and the so-called “reverse industrialization” states where post-industrial structures are being dismantled and replaced by industrial ones. Even though such cases are few and far between, looking at Marx’s theory from this angle, one could see a phenomenon that is not typical of Marxism. According to Karl Marx, a more progressive economic system is bound to prevail over a less progressive one. However, we have seen a competition between post-industrial or pre-post-industrial countries (such as Germany) and new industrial ones (mainly South Korea, China, and India). “I don’t think that this progressiveness has good chances of being implemented in the long haul,” Dmitry Yevstafyev noted.

With the upcoming global crisis threatening to exacerbate all the internal contradictions of modern-day capitalism, Dmitry Yevstafyev believes that Karl Marx’s methodology still remains relevant today.

The expert outlined the main specifics of the modern-day capitalist system. The first has to do with the idea of the so-called “fluid property,” which ultimately leads to the emancipation of the worker from property and the proprietor from management. The second is a systematic, man-made pauperization of society, as well as the growing number of part-time citizens as the most vulnerable social stratum. The factor of the information society will play a major role too.

Finally, from the standpoint of the geo-economic situation, there is one major problem that can’t be ignored, and this is the emergence of several “gray zones” with diffusive forms of economic and social interaction where existing economic and social institutions are being replaced by others. Such zones will serve as breeding grounds for new forms of human activity.

From an economic point of view, post-crisis capitalism will, just like its present version, be all about intra-group competition for control over mechanisms for extracting rent – natural, logistic and technological. On a social plane, however, multi-vector and multidirectional development will increase. As a result, instead of a global, highly standardized social and cross-cultural mainstream we will see the growing role of the multi-vector approach. Thus we may witness the emergence and sustained existence of a post-industrial version of capitalism based on trade relations of a network and sub-state nature, instead of industrial enterprises and financial institutions.

According to Dmitry Yevstafyev, a global economic crisis could be set off by a variety of factors, not least by problems emerging in the local financial market without any war.

“If the crisis starts with an economic collapse, you will take fewer risks. But from the standpoint of exercising control, the best option would be to take greater risks, but start with military action,” the expert noted.

first published in our partner International Affairs

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Economy

The Game of Tariffs

Sabah Aslam

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Adam Smith is considered the father of economics. Back in 18th century, he presented the concept of protectionism, which was given to promote the local industry. Nevertheless, in 21stcentury, the world is facing its repercussions.

It is time that the world should be well concerned by the actions that are being opted by the two economic giants. Trade deadlock between Beijing and Washington is getting intense. U.S. protectionist and unilateral approach is the impetus behind this trade war and hence so far no promising foreseeable future can be anticipated. Moreover, China’s economic and development initiative i.e. BRI and its successful pilot project CPEC is also giving headaches to Oval. This Game of tariffs has engulfed whole of the globe into its chakra.

Trump and his policies have always been scrutinized by the analysts everywhere. Even before the elections, Trump expressed his strong urge to subdue China by means of trade restrictions. It was clearly evident even before the elections that if Mr. Trump will somehow make his path to Oval, he will surely give Chinese a sturdy time.

In Nov 2016, it happened just as it was feared. The heat of July 2018 had resulted into an economic cold war. With the world being the witness, there is no doubt that when Washington says, it knows how to make it happen. Therefore, when Washington flaunted its intentions to put serious tariffs onto Chinese commodities, it actually meant it. What started from a mere USD 34 billion, has crossed over USD 200 billion till-date. So far, Washington has imposed tariffs on USD 250 billion worth of goods coming to United States. Furthermore, it has also threatened to increase the threshold to an approximate value of USD 325 billion. In return, Beijing retaliated with putting tariffs on US$ 110 billion worth of goods.

The latest development that added fuel to the fire was on May 10, when United States raise tariffs to 25% on $200 Billion products coming from China annually. This escalated tensions between the two more as it projected that U.S. is not coming slow. Not only this, China has also banned the trade of rare elements. These elements hold prime importance in making of a number of electronic products such as mobiles and laptops in the United States.

China’s ministry of commerce has shown concern over American intentions regarding the engagement of two in the trade war and had warned that the dispute may even lead to “largest trade war in economic history”. China has repeatedly shared its concerns over the trade stand-off between Beijing and Washington. Whereas, continuous cold responses from Washington are leading situation to worse ends. China, as a responsible state, talks about equality, inclusiveness, and shared future for the globe. It always encouraged openness and cooperation.

Stubbornness of Trump’s Administration is pushing the Globe towards an economic and trade crisis. High tariffs on products will ultimately raise the costs for suppliers, manufacturers, retailers and then eventually affecting the people at tail¬— consumers. The end consumers will have to face large price raises even for the general products. On November 30, 2018, Chief of the World Trade Organization had said that global free trade is facing its worst crisis since 1947 and warned that the current spectrum of conflict will lead to global trade crisis.

These tensions are not restricted between the two; instead, they have led the global market to fluctuations, which has put business persons and investors in a situation of uncertainty. This investment dilemma can halt the economic progress inside of both countries. International Monetary Fund has also warned that a full-blown trade war would weaken the global economy. Earlier in this month, Cristine Lagarde gave remarks on Donald Trump’s intent to tax all trade between two countries that it would “shrink the global Gross Domestic Product (GDP) by one-half of one percent”.

China is the new reality. Washington needs to realize that. There are new players onto the scene. Oval’s actions will be scrutinized now; its ways will be challenged. It will no longer go uncontested.

The world knows that global economic ship today is sailing towards east and Chinese dockyard is where it will anchor. Mutual understanding is beneficiary for both the countries as well as for the world economy. Beijing is determined to meet Washington’s intentions with full capacity. United States is inducing self-inflicting pain to itself and to the world too. Companies inside US have already started showing their grievances regarding the trade stalemate between Beijing and Washington. Over 600 companies including Walmart urged Trump to resolve the dispute with China as it directly affects the business community and customers inside US. Washington needs to comprehend that it will become victim of its own protectionist gambit if it continues to be on the route on which it has maneuvered itself.

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8 facts you don’t know about the money migrants send back home

MD Staff

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Here are eight things you might not know about the transformative power of these often small – yet major – contributions to sustainable development worldwide:

1. About one in nine people globally are supported by funds sent home by migrant workers

Currently, about one billion people in the world – or one in seven – are involved with remittances, either by sending or receiving them. Around 800 million in the world – or one in nine people– are recipients of these flows of money sent by their family members who have migrated for work.

2. What migrants send back home represents only 15 per cent of what they earn

On average, migrant workers send between US$200 and $300 home every one or two months. Contrary maybe to popular belief, this represents only 15 per cent of what they earn: the rest –85 per cent – stays in the countries where they actually earn the money, and is re-ingested into the local economy, or saved.

3. Remittances remain expensive to send

These international money transfers tend to be costly: on average, globally, currency conversions and fees amount to 7 per cent of the total amounts sent. To ensure that the funds can be put to better purposes, countries are aiming through Sustainable Development Goal (SDG) 10.C to “reduce to less than 3 per cent the transaction costs of migrant remittances and eliminate remittance corridors with costs higher than 5 per cent by 2030”.

Technical innovations, in particular mobile technologies, digitalization and blockchain can fundamentally transform the markets, coupled with a more conducive regulatory environment.

4. The money received is key in helping millions out of poverty

Although the money sent represents only 15 per cent of the money earned by migrants in the host countries, it is often a major part of a household’s total income in the countries of origin and, as such, represents a lifeline for millions of families.

“It is not about the money being sent home, it is about the impact on people’s lives,” explains Gilbert F. Houngbo, President of the International Fund for Agricultural Development, IFAD. “The small amounts of $200 or $300 that each migrant sends home make up about 60 per cent of the family’s household income, and this makes an enormous difference in their lives and the communities in which they live.”

It is estimated that three quarters of remittances are used to cover essential things: put food on the table and cover medical expenses, school fees or housing expenses. In addition, in times of crises, migrant workers tend to send more money home to cover loss of crops or family emergencies.

The rest, about 25 per cent of remittances – representing over $100 billion per year – can be either saved or invested in asset building or activities that generate income, jobs and transform economies, in particular in rural areas.

5. Specifically, remittances can help achieve at least seven of the 17 SDGs

When migrants send money back home, they contribute to several of the goals set in the 2030 Sustainable Development Agenda. In particular: SDG 1, No Poverty; SDG 2, Zero Hunger; SDG 3, Good Health and Well-Being; SDG 4, Quality Education; SDG 6, Clean Water and Sanitation; SDG 8, Decent Work and Economic Growth; and SDG 10, Reduced Inequality.

If current trends continue, between 2015 and 2030, the timeframe of the 2030 Agenda, an estimated $8.5 trillion will be transferred by migrants to their communities of origin in developing countries. Of that amount, more than $2 trillion – a quarter — will either be saved or invested, a key aspect of sustainable development.

“Governments, regulators and the private sector have an important role to play in leveraging the effects of these flows and, in so doing, helping nearly one billion people to reach their own sustainable development goals by 2030,” IFAD’s Gilbert F. Houngbo stressed in a statement.

6. Half of the money sent goes straight to rural areas, where the world’s poorest live

Around half of global remittances go to rural areas, where three quarters of the world’s poor and food insecure live. It is estimated that globally, the accumulated flows to rural areas over the next five years will reach $1 trillion.

7. They are three times more important than international aid, and counting

Remittances are a private source of capital that’s over three times the amount of official development assistance (ODA) and foreign direct investment (FDI) combined.

In 2018, over 200 million migrant workers sent $689 billion back home to remittance reliant countries, of which $529 billion went to developing countries.

In addition, the amount of money sent by international migrant workers to their families in developing countries is expected to rise to over $550 billion in 2019, up some $20 billion from 2018, according to IFAD.

8. The UN is working to facilitate remittances worldwide

“It is fair to say that, in poor rural areas, remittances can help to make migration a choice rather than a necessity for so many young people and for future generations,” explained Mr. Houngbo.

As such, migrant contributions to development – through remittances and investments – is one of the Objectives of the Global Compact on Safe, Orderly and Regular Migration, adopted by the UN General Assembly in December of last year.

With half of all flows going to rural areas in developing countries, IFAD, the UN’s agency mandated with agricultural development, is working to make the development impact of remittances even greater. The organisation’s Financing Facility for Remittances programme (FFR) was designed to promote innovative business models in order to lower transfer costs and provide financial services for migrants and their families. Through partnerships across several sectors, the programme runs initiatives to empower migrants and their families through financial education and inclusion, as well as migrant investment and entrepreneurship.

“Over the past decade, IFAD has invested in over 40 countries, supporting more than 60 projects aimed at leveraging the development impact of remittances for families and communities,” said Paul Winters, IFAD’s Associate Vice-President, in an event held on Friday at UN headquarters in New York.

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Guiding a new generation of learners on inclusive green economy

MD Staff

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As population numbers continue to grow and material resource use rises to unprecedented levels, the limits of today’s dominant model of economic growth have become increasingly apparent: extraction of material resources, including biomass, fossil fuels and non-metallic minerals has tripled since 1970, reaching an approximate 90 billion tonnes in 2019. A comprehensive overview of alternative economic models that center around environmental sustainability – published by UN Environment, the Zayed International Foundation for the Environment and Tongji University – hopes to help guide efforts to move to inclusive, green economies.

The official launch today of The Inclusive Green Economy: Policies and Practice marks the successful completion of a long-standing collaborative project.

Nineteen million premature deaths are estimated to occur each year due to environmental and infrastructure-related risks and natural-resource use. Resource extraction has also been identified as the leading cause of global biodiversity loss. This has led to an increasing number of countries to rethink their economic development model.

“Since Rio+20, an increasing number of countries are embarking on pathways towards inclusive green economies. I hope this book will help guide these efforts globally”,  Dr. Mohamad Ahmed Bin Fahad, Chairman of the Zayed International Foundation for the Environment highlighted in his welcome address at the launch.

An inclusive green economy is defined by UN Environment as one that is low-carbon, efficient and clean in production, but also inclusive, based on sharing, circularity, collaboration, solidarity, resilience, opportunity and interdependence. The handbook aims to offer a comprehensive framework for analysing inclusive green economy issues, such as investing in natural capital and clean technologies, as well as policies to enable investments. 

“With this collection – based on a wide range of thinking on the transition to an inclusive green economy – we hope to provide a useful resource for students and other stakeholders” Fulai Sheng, co-editor of the publication, emphasised.

 “This new textbook makes an important contribution to our understanding of how poverty, inclusiveness and employment issues must be fully taken into account to ensure a fair and just transition to a green economy”, Steven Stone, Chief of UN Environment’s Resources and Markets Branch, said.

Commending UN Environment and its partners on their efforts, the Executive Director of the UN Institute for Training and Research (UNITAR), Nikhil Seth, further observed that “publications like the one launched today will be instrumental in transmitting novel ideas and concepts that can inspire leaders of tomorrow”.

Dr. Meshgan Al Awar, Secretary General of the Zayed Foundation and Co-Author of the textbook, summarized the implication and significance of this initiative by noting, “The Inclusive Green Economy textbook provides an inspiring framework for nations, organizations and individuals to follow and simulate as they endeavor in this direction”.

UN Environment

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