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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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Modi’s India a flawed partner for post-Brexit Britain

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With just two weeks to go until Britain is scheduled to exit the European Union, Boris Johnson and his ministers are understandably focused on the last-minute dash to formulate a workable Brexit deal with the EU. Once this moment has passed, however, either Johnson or whoever replaces him as PM will come under intense pressure to deliver the trade deals Brexit side supporters have so talked up since 2016.

One such envisaged deal is with India. Seven decades after securing independence from Britain’s colonial empire, New Delhi has the world’s seventh-largest economy and one of its fastest growth rates. The prospect of deeper trade ties with Asia’s third-largest economy has been a major feature of the pitch for a “Global Britain” that extends the UK’s reach beyond the continent, and Johnson himself made a big thing of expanding economic ties with India while campaigning to become PM.

Unfortunately, any plans to kickstart trade agreements with India will run into problems, and not just over immigration and visa issues. India is on the verge of a serious economic downturn, hit by job losses and decreasing levels of foreign investment. With growth slowing down, Indian PM Narendra Modi has fallen back on his aggressive brand of Hindu nationalism to galvanise public support, a gambit that has most recently resulted in his government’s controversial move to strip automony from Kashmir.

Bad time for a UK-India trade deal

Whereas only a few years ago India was held up as one of the world’s fastest growing economies and an enticing prospect for global trade and investment, Moody’s new projection of a 5.8% growth rate represents a danger to Narendra Modi’s promise of a $5 trillion economy. Recently released figures show India’s GDP growth falling for the fifth successive quarter, to a six-year low of 5.2%.

India’s economic woes are reflected in patterns of foreign investment. Around $45 billion has been invested in India from abroad over the last 6 years. The downturn in the country’s economic fortunes has seen a record $4.5 billion of shares sold by foreign investors since June this year. These economic problems are linked to Modi’s failure to carry through on economic reforms promised when he came to power in 2014, when a number of structural problems were seen as inhibiting external trade relationships.

India currently has over 1,000 business regulations and more than 3,000 filing requirements, as well as differing standards for social, environmental and human rights. These have been sticking points in the moribund trade deal negotiations between India and the EU, and Brexit advocates have not explained how they plan to overcome these hurdles.

Hostility to foreign companies

Structural issues are only part of the problem. Another key concern is the Indian government’s adversarial attitude towards foreign investors. Despite Modi’s promises to make India an attractive place to do business, his government has continued protectionist policies that throttle the country’s ability to attract outside capital.

One issue is retrospective taxation. Under Modi’s predecessor, Manmohan Singh, several British and international firms were hit with sizeable, legally dubious tax bills by the Indian government. Modi came to power on a promise of ending retrospective tax bills being imposed on overseas companies, and yet British firms such as Vodafone and Cairn Energy still find themselves pursued through the courts for back-dated tax bills, despite the protections they should enjoy under the bilateral investment treaty between India and the UK.

Vodafone’s case involved its 2007 acquisition of a stake in cellular carrier Hutchinson Essar. While the deal did not take place in India, New Delhi determined Vodafone still owed $5 billion in taxes on the overseas transaction. After the Indian Supreme Court dismissed the claim in 2012, India’s previous government introduced a new law to tax transactions of this nature that retroactively applied to cases going back to 1962. Modi attacked this “tax terrorism” at the time, but his government has continued its dogged pursuit of Vodafone in the courts.

Cairn Energy has faced an equally arduous struggle with the Indian Ministry of Finance, which in 2014 blocked the British firm from selling its 10% stake in Cairn India and subsequently demanded $1.6 billion in taxes. Indian officials used the 2012 law to justify their actions, violating the bilateral investment treaty and breaking one of Modi’s own campaign promises in the process.

Immigration laws a further sticking point

This recent history should already give British businesses pause, but the most obvious obstacle in any trade negotiations between UK and India will be the issue of immigration. The Centre For European Reform has argued post-Brexit trade will be closely linked to opening up UK borders to workers from partner countries, but a UK Commons Foreign Affairs Select Committee report in June highlighted how Britain’s immigration restrictions on Indian workers, students and tourists has already impacted bilateral trade relations. The report noted how the UK has slipped from being India’s 2nd largest trade partner in 1999 to 17th in 2019, adding that skilled workers, students and tourists are deterred from coming to the UK by the complicated, expensive and unwelcoming British migration system.

It is unlikely the Modi government will agree to any UK-India trade deal that doesn’t guarantee a relaxing of immigration rules that will allow a free flow of people as well as goods and capital between the two countries. The question is whether the British government, which has veered ever more closely towards a Brexit-fuelled populism at odds with relaxed border controls, will be flexible enough to sign up to this.

Given these issues, are Britain’s hopes for a post-Brexit dividend in Indian trade dead on arrival? Unless Modi’s government starts living up to international standards and honouring his country’s investment agreements with British companies, “Global Britain” may not get much further with India than it has with the US.

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A more effective labour market approach to fighting poverty

Cynthia Samuel-Olonjuwon

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Gainful employment is still the most reliable way of escaping poverty. However, access to both jobs and decent working conditions remains a challenge. Sixty-six per cent of employed people in developing economies and 22 per cent in emerging economies are in either extreme or moderate working poverty, and the problem becomes even more striking when the dependents of these “working poor” are considered.

Thus, it is not just unemployment or inactivity that traps people in poverty, they are also held back by a lack of decent work opportunities, including underemployment or informal employment.

Appropriate labour market policies can play an important role in the fight to eradicate poverty, by increasing access to job opportunities and improving the quality of working conditions. In particular, labour market policies that combine income support for jobless people with active labour market policies (ALMPs).

The new ILO report What works: Promoting pathways to decent work  shows that combining income support with active labour market support allows countries to tackle multiple barriers to decent work. These barriers can be structural, (e.g. lack of education and skills, presence of inequalities) or temporary (e.g. climate-related shocks, economic crises). This policy combination is particularly relevant today, at a time when the world of work is being reshaped by global forces such as international trade, technological progress, demographic shifts and environmental transformations.

Policies that combine income support with ALMPs can help people to adjust to the changes these forces create in the labour market. Income support ensures that people do not fall into poverty during joblessness and that they are not forced to accept any work, irrespective of its quality. At the same time, ALMPs endow people with the skills they need to find quality employment, improving their employability over the medium- to long-term.

New evidence gathered for this report shows that this combination of income support and active support is indeed effective in improving labour market conditions: impact evaluations of selected policies indicate how people who have benefited from this type of integrated approach have higher employment chances and better working conditions.

One example of how this combined approach can produce results is the innovative unemployment benefit scheme unrolled in Mauritius, the “Workfare Programme”. This provides workers with access to income support and three different types of activation measures; training (discontinued in 2016), job placement and start-up support. The programme was also open to those unemployed people who were previously working in an informal job. By extending coverage to the most vulnerable workers, the scheme has helped reduce inequalities and unlock the informality trap.

Another success came through a public works scheme implemented in Uruguay as part of a larger conditional cash transfer programme, the National Social Emergency Plan (PANES). The programme was implemented during a deep economic recession and carefully targeted the poorest and most vulnerable.

Beneficiaries of PANES were given the opportunity to take part in public works. In exchange for full-time work for up to five months, they received a higher level of income support as well as additional job placement help. This approach reached a large share of the population at risk of extreme poverty and who lacked social protection. The report indicates that providing both measures together was critical to the project’s success.

The effects of these policies on poverty eradication cannot be overestimated. By tackling unemployment, underemployment and informality, policies combining income support with ALMPs can directly affect some of the roots of poverty, while enhancing the working conditions and labour market opportunities for millions of women and men in emerging and developing countries.

ILO

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CPEC vs IMF in Pakistan

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International Monetary Fund (IMF) was created just after World War II (WWII) in 1945. The IMF is an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.

Pakistan has been knocking doors of IMF since 1958, and it has been 21 agreements with IMF. Generally, the IMF provides loans at very low-interest rates and provides programs of better governance and monitoring too. But for the last 6 decades, Pakistan has suffered a lot, in terms of good governance. Especially last 2 decades, corruption, nepotism, poor planning, bribery, weakening of institution, de-moralization of society, etc were witnessed. We may not blame the IMF for all such evils but must complain that the IMF failed to deliver, what was expected. Of course, it is our country, we are responsible for all evils, and wrongdoings happened to us. We have to act smartly and should have made the right decision and at right times.

IMF also dictates its terms and condition or programs like: devaluation of local currencies, which causes inflation and hike in prices, cut or draw-back of subsidies on basic utilities like fuel, gas, electricity, food, agriculture etc, which causes cost of life rather higher for local people, cut on development expenditures like education, health, infrastructure, and social development etc, which pushes the country even more backward. IMF focusses only on reducing expenditures and collection of taxes to make a country to meet the deadlines of payments. IMF does not care about the development of a country, but emphasizes tax collections and payment of installments on time, to rescue a country from being a default.

While CPEC is an initiative where projects are launched in Power Generation, Infrastructure development under the early harvest program. Pakistan was an energy trust country and facing a severe shortage of Electricity. But after completion of several power projects under CPEC, the shortfall of electricity has been reduced to a great extent. One can witness no load shedding today, while, just a few years back the load shedding was visible throughout the country for several hours a day. Several motorways and highways have been completed. Gwadar port has been operational partially. Infrastructure developments are basic of economic activities.

Projects under CPEC has generated jobs up to 80,000. CPEC was the catalyst to improve GDP by around two percent during 2015-2018. CPEC has lifted the standard and quality of life of the common man in Pakistan. CPEC was instrumental to move the economic activities and circulation of wealth in society. Under CPEC, early harvest projects, 22 projects have been completed at the cost of approximately 19 billion US dollars.

It is understood that early harvest projects were heavy investment and rather slow on returns. But, these projects have provided a strong foundation for the second phase, where Agriculture, Industrialization and Social Sector will be focused. Return on Agriculture and Industrial produce is quick and also generates more jobs. The second phase will contribute toward the social development of Pakistan as well as generate wealth for the nation.  Pakistan’s agriculture sector has huge potential as cultivatable land is huge, workforce is strong and climate is favorable.  Regarding Industrialization, Pakistan is blessed with an abundance of mines and minerals. The raw material is cheap and the labor cost is competitive. Pakistan has 70% of its population under the age of 40 years, which means an abundance of the work force. Pakistan’s domestic market is 220 million and the traditional export market is the whole of the middle-east and the Muslim world.

The major difference between the CPEC and IMF is that CPEC generates wealth, while IMF focuses on tax collection and reducing the developments and growth. China is the latest model of developments in the modern days, China is willing to replicate its experience with Pakistan for its rapid development.

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