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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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The European Green Deal: Risks and Opportunities for the EU and Russia

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The European Green Deal approved by the EU in 2019 is an economic development strategy for decoupling and for carbon neutrality by 2050 [1]. The plan is to reduce greenhouse gas emissions by at least 55% by 2030. In pursuit of this policy, the EU is setting the goals of increasing resource use efficiency and of advancing toward a circular economy, restoring biodiversity and curbing pollution.

While obviously having an impact on the EU economy, the implementation of the Deal will also concern the economies and foreign commerce of its trading partners through the anticipated re-structuring of energy markets and reduced carbon-intensive imports. In the next decade, the European Green Deal will mostly affect coal imports, possibly followed by oil and gas imports after 2030. By 2030, coal imports are expected to reduce by 71–77% of the 2015 level, coupled with a 23–25% decrease for oil imports and a 13–19% decrease for imports natural gas. Post-2030 plans envision a virtually complete abandonment of coal and significant reductions in the EU’s oil and gas imports—by 78–79% and 58–67% of the 2015 level, respectively.

The border carbon tax (BCT) is one of the mechanisms envisioned by the European Green Deal with a view to covering the expenses of European manufacturers in their commitment to reduce emissions. The tax will be based on the carbon-intensity of a particular product and its foreign trade share in EU market sales.

Why does the EU want The European Green Deal?

The EU and Russia offer quite different reasoning for the European Green Deal and the ВСT.

European regulators believe the European Green Deal and the ВСТ will help “force” the nations (primarily the EU’s partners) trying not hard enough to reduce their emissions and to mount a stronger climate policy. The EU has declared its historical responsibility for the accumulation of greenhouse gases in the atmosphere, while believing that it will not be able to resolve the issue of global climate changes on its own.

Along with enhancing supply security by making the EU less dependent on imports of a vast number of raw materials from one single country, other arguments suggest boosting the efficiency of resource use and curbing pollution. The EU is largely dependent on the deliveries of several natural resources, since it imports 87% of the oil it consumes and 74% of the natural gas. Proponents also note greater dependence on deliveries from a limited number of countries, including Russia. In 2019 and the first half of 2020, Russia’s share in the value of natural gas supplies to the EU was 44.7% and 39.3%, respectively. Norway, the second biggest supplier, had a share of some 20%, or about half of Russia’s. In reality, the degree of dependence is even greater, since long-term contracts are commonplace in this field and no allowances for delivery route flexibility are made as shipments are transported by pipeline. In 2019 and the first half of 2020, dependence on oil imports from Russia was less pronounced and amounted to 28% and 26.4%, while still being way higher than the share of the second biggest supplier, the U.S. (9.2%).

COVID-19 and the subsequent 6.2% contraction of the EU’s economy were additional factors weighing with the European Green Deal. Economic recovery has come to be considered in connection with achieving carbon neutrality. The 2020 global economic meltdown has become a driver for stepping up the environmental—and climate, in particular—ingredient in the aid packages offered by many developed and a number of developing countries.

From Russia’s perspective, the new deal is intended primarily for preemptively boosting competitiveness on global markets through advancing new technological sectors, which is mainly justified as a solution to the climate problem. Moreover, Russia believes that the deal is driven by political considerations that, among other things, have to do with reducing the EU’s dependence on imported raw materials. The environmental sector in the EU economy is already a global leader. According to Eurostat, the environmental goods and services sector grew by 2.3% already in 2017, while its gross added value amounted to $287bn, or 2.2% of the EU-27’s GDP.

Another proof that the task of making Europe-made goods more competitive is high on the agenda lies in the fact that the ВСТ will be based on the foreign trade share of carbon-intensive products, which will help stimulate sales of Europe-made goods. At the same time, European officials acknowledge that no significant carbon leakages have so far occurred; however, they cannot be ruled out in the future. Russia believes that exporters from other countries will hardly be able to compete once the tax is introduced.

Like the EU, Russia presumes that the BCT is an additional source of revenue for the European treasury amid the crisis brought about by the pandemic as well as a way to cover the significant expenses involved in implementing the new deal.

From Russia’s standpoint, one of the “unfair” aspects of levying such a tax is the fact that the EU’s policy-makers are playing up the advantage of the Union’s higher level of economic and technological development, making particular use of the historically broad resource base and the accumulated volume of greenhouse gas emissions. The EU-28’s Accumulated Emissions for 1751–2017 were estimated at 22% of global emissions, which makes the EU the next to largest emitter after the US (25%), while Russia accounts for only 6%.

Both parties concur that the main goal of the European Green Deal is to maintain the EU’s competitiveness amid the radical restructuring of the global economy. It is claimed that the ВСТ could prompt a shift of manufacturing into the countries with less stringent carbon emission standards (“carbon leakage”) due to the fact that outlays on de-carbonizing businesses in several carbon-intensive sectors will significantly increase.

For the EU and Russia, the European Green Deal carries both risks and rewards

The main risks for the EU lie in the high costs of making the European Green Deal a reality as well as in the fact that some manufacturers being tipped into unfavorable conditions, all of which is coupled with a price hike for consumers, retaliatory measures to be undertaken by other countries and energy security risks. Apart from some technological difficulties in introducing the BCT, other challenges include the tax’s ineffectiveness in resolving the climate change problem, since the BCT is non-existent in other countries.

The European Commission estimates the additional annual investment required to achieve these goals by 2030 at €260bn. Yet the unprecedented funding envisioned by the new deal for the purpose is not enough to achieve these goals. The roadmap entails allocating at least €1 trillion for “sustainable” investment. Besides, the Next Generation EU fund, established to boost the recovery of the European economy after COVID-19, earmarks another €750bn for this purpose. A staggering €600bn shall be provided for climate action funding alone, as stipulated by the Green Deal and the pertinent part of the recovery plan. Additional investment is expected to come from companies, households and national governments.

Ultimately, the ВСТ will have a negative impact on the competitive edge of all European manufacturers, concerning, above all, those sectors where imported raw materials with a high carbon footprint account for a significant chunk of the costs.

Transitioning to new power sources will require higher carbon prices, which might ultimately result in a hike in consumer prices and a drop in the quality of life across the EU.

The European Green Deal might result in new threats to the EU’s energy security, since a significant import expansion of metals and minerals—used in manufacturing solar panels, wind turbines, ion-lithium batteries, fuel cells and electric cars—is needed for a large-scale de-carbonization of the economy. As of now, no substitutes for these raw materials are to be found.

Should the ВСТ be introduced, the EU’s trade partners may well, contingent on specific policies, initiate trade disputes. The European Commission has to ensure that the BCT is compliant with the WTO’s rules, which, however, does not eliminate the risk of retaliation on the part of other countries, which may take the shape of their mounting resistance to the adoption of the tax. In 2012, the plans to introduce the ВСТ for foreign air transport companies encountered particular pushback from other states, such as the US, China, India, Japan or Russia, which forced the EU to abandon the idea.

Several experts point out that this tax is ineffective in resolving the global climate change issue, since it does not exist in other countries.

There are also technical difficulties in introducing the tax. These have to do, in particular, with calculating the carbon component in imported goods in consideration of greenhouse gas emissions along the entire value chain of the product.

At the same time, the European Green Deal could benefit the European companies that bear the high costs in de-carbonizing their manufacturing. The tax will allow production to be expanded in energy-intensive sectors as well as in sectors with high-intensity trade, as about 20% of the drop in manufacturing will be offset by payments for CO2 emissions.

Russia, in turn, may face the dire prospect of losing its energy and carbon-intensive markets as well as encounter challenged posed by the BCT. Most of the profound consequences will stem from a gradual loss of oil and gas markets following a drop in demand and prices, which may additionally be exacerbated by the carbon tax. Oil and gas revenues play a key role in the Russian budget, with their share being in the ballpark of a third and a half of it. In 2018 and 2019, the figures stood at 46% and 39% respectively. In 2020, they fell to 28% owing to the slumping demand and prices amid the pandemic and OPEC agreements.

No significant drop in oil and gas imports is expected before 2030. However, in the longer run, the EU aspires to significantly reduce its supplies from Russia. In the meantime, 45% of Russia’s fossil fuel exports go to the EU. Russia might lose a significant chunk of the EU market to European manufacturers or foreign competitors whose oil production has a smaller carbon footprint: take Saudi Arabia, for instance.

The ВСТ will be conducive to the EU’s demand for Russia’s finished products falling as well, primarily when it comes to a number of steels manufactured with carbon-intensive technologies. The BCG company estimates Russian exporters’ losses, once the tax is introduced, to be some $3–5 bn annually; KPMG’s estimates are somewhat higher.

De-carbonization practices in other countries will also inform the demand for Russian fuels and carbons. Many countries have set the goal of radically reducing greenhouse gas emissions. Some countries plan to introduce a ВСТ, while the US, China and the EU are now discussing possible cooperation in this field. It is worth noting that the global pace of de-carbonization and ВСТ introduction is hard to predict, but this should not justify a setback in Russia pursuing a more active climate policy.

At the same time, Russia could stand to benefit from the European Green Deal. Before 2030, a significant reduction of emissions will demand that the use of coal be rapidly phased out, which will result in an increased demand for natural gas, as the latter is seen as a “transition fuel” on the way to a low-carbon economy. This will allow Russia to expand its short-term and medium-term gas exports.

Technological restructuring of the economy and export diversification might emerge as the main potentially positive outcomes for Russia. The point at issue has ultimately to do with transforming the energy industry towards greater use of renewable energy sources (RES), whose cost tends to gradually decrease, as well as towards enhanced reliance on the new types of energy, such as hydrogen, which may, at the very least, partially replace fossil fuels and be exported to foreign markets.

Timely introduction of climate regulations will allow Russia to avoid having the ВСТ applied to its products. It remains unclear what kind of regulations could help resolve this matter, though.

Russian companies, now transitioning to low- and zero-carbon technologies, will be able to benefit from the price to be put on carbon and avoid paying the special tax, much as able to engage in trading quotas, depending on the instrument to be potentially used at the state level. They will likely be required to monitor greenhouse gas emissions along the entire product value chain.

The European Green Deal and the pertinent part of the EU’s economic post-pandemic recovery plan earmark about 10% of the climate action funding for “internationalizing” the Deal, which effectively means providing aid to trade partners in the form of grants, loans and guarantees for transitioning to “sustainable” energy industries and restructuring their economies and exports. Therefore, there is a theoretical possibility that some of the investment will be channeled into joint “green” projects.

The ‘green’ avenues for fostering EU–Russia bilateral relations

The European Green Deal affords opportunities for the parties to cooperate. This should not be limited to climate issues alone, although restructuring the energy sector remains a priority. Such cooperation should also include addressing the whole set of measures needed to transition to a “green economy”, with circular economy being one of its ingredients. The latter’s share in the global economy is estimated at some 9%.

Investment cooperation might become a key area, primarily encompassing investment in research, manufacturing and infrastructure, since restructuring the economy means taking it to a new technological level. Amid falling oil and gas revenues, Russia needs to explore new areas. Legally, there are no sanctions-related restrictions in climate matters.

The world already possesses a large number of the technologies to facilitate transitioning to a zero-carbon development track. Above all, these are the RES, “green” hydrogen and state-of-the-art bioenergy. Combining these sources will help implement this development track. Additional academic assessments are required to identify the efficiency and environmental acceptability of specific technologies to be used in joint projects, while taking the entire value chain into account.

Investment in hydrogen energy might become an important cooperation avenue, since its global market share is pegged at $2.28 trillion already by 2027. The International Renewable Energy Agency (IRENA) predicts that hydrogen will account for 12% of global energy consumption by 2050. Other experts put hydrogen’s share in global final energy consumption at 18%.

Hydrogen energy is seen as an important element in achieving the EU’s carbon neutrality, as the hydrogen’s share in Europe’s energy balance might reach 14% by 2050. Gazprom estimates Europe’s hydrogen market at $153bn as of 2050, while the Ministry of Energy suggests it will amount to $32–164bn. The Hydrogen Strategy approved by the European Commission in 2020 as part of the European Green Deal encourages the development of hydrogen energy. In Russia, it may be driven by the Strategy for Hydrogen Energy Development, which is currently being drafted. This strategy provides for collaboration with other states, including the EU. Plans for 2021 include presenting incentive measures for hydrogen exporters and consumers.

Supplies of “blue” and “turquoise” hydrogen could be a promising cooperation area. This hydrogen is produced from natural gas and it might be a particularly viable option, since this is generally perceived as being profitable economically and having the smallest negative environmental impact. Another prospective area is to encourage “green” hydrogen projects [2]. Hydrogen cooperation is of interest to both Russian and European companies, including Gazprom, Rosatom and NOVATEK. Rosnano and Enel Russia plan to jointly produce “green” hydrogen at the Enel Russia wind power plant, which is currently under construction in the Murmansk Region, and subsequently export the hydrogen of some $55m worth to the EU. Besides, NOVATEK signals its intentions to commence production of “blue” and “green” hydrogen together with Germany’s Uniper.

Another potentially conducive to cooperation factor is that, as far as the EU is concerned, Russia has a competitive edge in its geographical proximity, large gas deposits, production facilities and robust infrastructure. Small-scale pilot projects may become the first step to determine their benefits and costs for both parties. Building business partnerships may be another prospective path.

Cooperation is also promising in the areas of increasing energy efficiency, reducing methane leaks, supplying electricity, adapting to climate change, preserving biodiversity as well as in the fields of waste management, sustainable agriculture and forestry, electric car manufacturing, introduction of trading quotas, etc. The big take-off of digital technologies makes it possible to create databases in order to transparently select the most promising projects, boost their efficiency and achieve positive outcomes, and improve management systems.

Predicted development of EU-Russia economic and political relations amid Europe’s increasingly stringent environmental standards

The BCT tax will clearly have a negative impact on the bilateral relations and, most importantly, serve to breed deeper distrust between the parties, triggering a further re-orientation toward enhancing economic links with Asian nations, primarily China, for whom Russia, along with Saudi Arabia, is one of the biggest suppliers of oil and where Russia is stepping up its natural gas exports.

To avoid a deterioration in relations, it would be preferable for the parties to engage in constructive cooperation in their mutual interests, especially since the framework for this is already in place. In 2021, Russia intends to adopt its own Climate Strategy as well as a number of environmental laws in other areas. In order to facilitate Sakhalin’s path to carbon neutrality, there has been proposed a bill introducing a mechanism for selling greenhouse gases emission quotas on the island. Russia’s leading energy companies have already embarked on climate-related plans, with some companies devising climate strategies of their own.

In fact, the European Green Deal is an issue where Russia and the EU have common approaches as much as differences of opinion. At the same time, divergent opinions are no crucial obstacle to environmental cooperation between the parties.

The implementation of the European Green Deal is fraught with major risks for both parties, the principal ones for the EU being the high costs of the strategy and retaliatory steps to be undertaken by other countries. Russia faces the dire prospect of losing markets and lagging behind in re-structuring the energy industry, its key economic sector. At the same time, new opportunities are opening up, such as bolstering the parties’ global competitiveness by entering new markets.

Environmental cooperation between the two parties could be mutually beneficial to become one of the principal areas for negotiation and implementation. In order to fulfil this potential, dialogue—based on an open and balanced approach to assessing areas for collaboration and possible rapprochement—is needed. As a first step, the EU and Russia could develop a roadmap outlining every step of such cooperation and the parties’ commitments as well as specifying the market segments where projects could be carried out.

  1. Breaking down the proportionate relations between development and resource consumption.
  2. Produced by using RES to power water electrolysis.

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Eastern Balkans Economic update: Romania’s and North Macedonia’s new data for 2020

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When governments around the world started reacting to the pandemic, they induced a vast and unpredictable crisis. The ensuing recession struck in decidedly variegated ways both we looking at different countries and multiple social strata. Many economies fell in a downturn that has compromised access to income in certain States, although elsewhere these effects were risible. Such inequalities stand out in worldwide comparison, but they happen to be huge in structurally-alike, bordering States as well.

Recently, a varied pack of heavyweights and some smaller countries has rebounded strongly in relation to both GDP and employment. China and the US are at the forefront of this recovery for diverse whys and wherefores and in dissimilar manners. Like trucks on a difficult mountain road, the two are accelerating as they overcome the crisis helping the world economy.

Still, something is absent in this rubicund montage of rebounds and development: the European Union. Being the wealthiest market in human history, the EU may support other countries’ recovery tremendously. Yet, inner imbalances, organisational feebleness, and lack of resolve are restraining the Union. There have been serious consequences for some unconsolidated EU economies and on the many other States bound to the block. Following up a previous article, new data reveal how two very different country on the EU’s periphery fared in 2020.

Romania — The worst seems over

Over 20 million inhabitants and yearly exports worth about $80 billion make Romania a little giant in the Eastern Balkans. It joined the EU In 2007 in tandem with Bulgaria, and since analysts then to bundle the two countries together. However, this article’s approach is different as it compares Romania with the least populous country in the region: North Macedonia. The latter is not an EU member either, making them possibly the most dissimilar cases in the Eastern Balkans.

Romania’s economy suffered badly in the beginning of 2020, with its GDP collapsing 33% in the first quarter. These figures could be considered the worst since the onset of the post-socialist transition in the 1990s.The trend only got partially more positive in the following three months (April–June), when the economy started recovering somewhat. Yet, by the end of 2020 only 128,800 people had lost their job, or 1.49% on the previous year. The fact that the economy seems to be performing well has kept swaths of them in look for a new job. This explains rather discomforting unemployment statistics.

Gross Domestic Product

Romania’s economy only managed to get out of a steep slump in the summer quarter (July–September) of 2020. The figures reveal a strong V-shaped rebound, with GDP recovering almost 20 percentage points on its 2019 levels (Chart1). In the last three months of 2020, Romania’s GDP rose by a further 13%, reaching slightly above last years’ estimates. At the end of 2020, total production was 100.39% of its 2019 levels, whereas the Euro Area stopped at 96.86%.

Un/Employment

Curiously, unemployment data for most of 2020 diverge from Romanian economy’s overall impressive performance — and significantly so (Chart 2). Unemployment rose in the first three months of 2020, and started growing even faster in the ensuing nine months. In spite of a positive GDP dynamic, employment decreased by almost 130,000 units in 2020Q4due to the pandemic-induced crisis.

True, unemployment statistics do not say much about the structure of the Romanian labour market, a key factor in these processes. Unlike most of their Eurozone peers, Romanian enterprises deal with a greatly flexible manpower with fewer rights and protections. Thus, they can lay off and hire staff much faster than competitors and partners in the richest EU economies. Yet, one should not interpret unemployment’s as a consequence of new people entering the job market during 2020Q2–Q3. After all, in those six months the number of employed people fell by 2.4% compared to 2019Q3 or 207,500 units. Meanwhile, unemployment ‘only’ grew by 1.3 percentage points indicating that some laid-off workers became inactive. In a word, ordinary Romanians did not get a fair share of the recovery’s gains.

RNM — It couldn’t get much worse, so it got better

As anticipated, the Republic of North Macedonia (RNM) is very different from Romania in many respects. First, its population is a fraction of the latter’s, only about two million people according to questionable official data. Furthermore, the RNM is not a member of the EU despite the fact a markedly asymmetric dependence from the Union. In effect, its economy is mostly reliant on trade with and tourism from three EU member States: Bulgaria, Germany and Greece. The country averted a civil war in 2001 by appeasing its Albanian minority, but its economy has struggled ever since.

One could argue that the situation before the pandemic hit was so dire that worse performances were rather unlikely. When the economies of Bulgaria and Greece slowed down and tourism came to a halt, the RNM’s suffered as well. In the first quarter of 2020 the RNM’s GDP fell by 14%, and shrunk further in the following three months. New figures show that about 17,000 people lost their job in April–June 2020, which became 21,000 in December. This means a 2.66% decrease in employment for a country where unemployment was 17.3% in 2019.

Gross domestic product

The RNM’s economy took the biggest hit in the second quarter of 2020, after having already suffered somewhat in January-March. In 2020Q2, North Macedonian GDP was about 23% lower than in 2019 (Chart 3), against the Eurozone’s 17%.Yet, the slid is nothing like the recession the RNM experienced during the Yugoslav Wars and the 2001 civil war. With the summer, both Bulgaria and Greece as well as the entire EU reopened their borders and started growing again. There were positive ripple effects on the RNM’s economy in the third quarter, with GDP growing by 448 million euros. The 20% increase of the summer became the base for further growth in the October-December 2020. By the end of the fourth quarter, the RNM’s GDP increased by another 10%— converging on its 2019 levels.

Un/employment

Unlike in Romania’s case, inconstant performances did not affect unemployment statistics visibly in the RNM (Chart 4). Actually, and counter intuitively, in comparison to 2019 unemployment decreased by 0.6% to 16.7% in the first two quarters of 2020. In total, during the first half of 2020, the RNM’s economy lost4,200 jobs or 0.5% in comparison to 2019 levels. The National Statistical Agency recorded similarly inconclusive fluctuations all year round, suggesting a deep disconnect between GDP and unemployment. All in all, one could justify these findings with the ignominious state in which the RNM’s labour market is. The population is not very active, yet unemployment has never fallen below 15%in the past 20 years.  Therefore, ordinary people fail to reap sensible benefits even if the economy overall is growing.

Conclusion: Pandemic management matters

There are two lessons that one can draw from these figures and by comparing the cases of Romania and the RNM. One, regards the pandemic and the ways its management interact with key economic indicators. While the other speaks volume on the differences between these two countries on the EU’s periphery.

Arguably, the data may comfort the thesis that not only lockdown fuel recessions, but less lockdowns spur economic growth. In fact, Romania performing better than most EU and Eurozone economies in terms of GPD growth suggests that less lockdowns favour growth. After all, authorities in Bucharest have been and remain remarkably consistent in their refusal to shut down the economy. Conversely, the rather trendless fluctuation in the RNM’s data and performance results at least partly from the government’s inconsistency. Actually, Skopje went from minimal anti-contagion restrictions to declaring a full-scale, countrywide lockdown virtually overnight— a behaviour that fuels uncertainty.

Additionally, these figures dispel some of the cloud surrounding the EU’s and its peripheries’ path out of the crisis. On the one hand, the EU is trying to dig its escape route by investing billions of euros over the coming years for countrywide Recovery plans. True, Romania’s share of grants is not as bis as Bulgaria’s, Greece’s or Italy’s, but the government is thinking big. On the other hand, the RNM is amongst the “poorest countries in Europe” never to be part of the USSR. Unemployment figures could cause vertigos even before the pandemic hit and the population is shrinking at impressive rhythms. Not being a member of the EU, Skopje will get only a fraction of the money Brussels has earmarked. Paradoxically, dependence on the EU was the transmission belt of the crisis, but lack of integration will hinder the recovery.

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Economy

Biden should abolish corporate tax for small business, and make Big Tech pay what they owe instead

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If Biden wants to increase tax revenue, create jobs and protect the American Dream, he should abolish corporate income tax for startups and small businesses.

In America, mom and pop businesses pay the same tax rate as multinationals. Individual income tax has seven tax rates, depending on how much an individual has made. We need the same system for corporate income tax, instead of a flat rate that strangles small businesses. Small businesses that are essential for our post-pandemic recovery.

For companies to pay their fair share of tax, corporate tax rates need to be fair. Individuals have a progressive tax system – the more you earn, the higher rate you pay – but for companies it is a flat rate. That’s not fair, especially when the US, like many countries, is committed to the idea of corporate personhood: that a corporation is a legal person.

For small businesses – which are the majority of American businesses – there is really no difference between corporate and individual income. If the mom and pop store does well, so do Mama and Papa. This is what makes the current system even more unfair.

The inherently fair idea of progressive taxes (where the more you earn, the higher rate you pay) has deep roots in Western civilization. The famous economist Adam Smith wrote about this concept centuries ago. Even John Locke, a man who famously hated taxes, was in favour of progressive taxation. The idea originates in Ancient Greece and in the arguments of Aristotle and is intimately linked with democracy itself. 

We can all agree that this makes sense for individuals. So why does this same principle not apply to business? I think it should, especially because I believe every individual has an entrepreneur within them. Anyone can – and should – be a CEO, a builder of opportunity and wealth. But government policies have to encourage that, and protect capitalism from the threat of increased social divides.

Two individuals, Elon Musk and Jeff Bezos now have more wealth than the bottom 40% of Americans. The share of total wealth of the upper class in the US has increased from 60% to 79% in the last 40 years, while the lower class share has decreased from 7% to 4%, and the middle class’s share has dropped from 32% to 17%. 

This doesn’t mean that we shouldn’t aim to raise more corporate taxes – we should. Out of $3.46 trillion revenue income realized by the US government only about $230 billion or close to 6.6% was contributed by corporates.

Some corporates can afford to pay more – especially Big Tech, because they don’t even pay the low flat rate they should be paying. In the UK, for example, Amazon paid £293 million in tax, even though it made £13.73 billion in sales in 2019 or about 2%. This is in stark contrast to the 21% corporation tax it is supposed to pay. 

We need more fairness, to protect true capitalism. Fairness isn’t just a socialist value, it is about providing equal opportunity for all citizens to prosper through wealth creation.

It’s unfair that those small businesses and start-ups end up paying proportionally more than their multi-national counterparts. But this is also economically stifling: Instead of allowing founders the space to breathe, grow and make new hires, they are faced with big, strong competitors who pay effectively lower taxes (because they can afford the best tax attorneys).

The American Dream is predicated on the idea that one can start a new business, work hard and be the master of his or her own destiny. A regressive corporate tax policy, which we have now, flies in the face of this ideal. 

In 2020, 804,398 new businesses were started in the US. We have to give these businesses a fair opportunity to grow. By taxing them at the first hurdle, we stifle the chance of the next Facebook and Google being born, which could equally lead to much less tax revenue down the line. 

Lowering, or abolishing, start-up business tax can counter-intuitively increase tax revenue for the federal government in the long-term.

More importantly, it can remind us what America is really about, and bring our communities and generations together at a time when we need unity, growth and innovation more than ever before.

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