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The birth of the modern concept of economic war and Bernard Esambert’s thought

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Without my friend Bernard Esambert there would not certainly be the current concept of “economic warfare”.

 Having studied at the Ėcole Polytechnicque, he is a natural heir to the best Colbertian, Saint-Simonian, positivist – and later Gaullist – tradition – which pervades the background and education of the modern and post-revolutionary French elites, with governments that pass and ruling classes that remain, as it must always be.

 It is no coincidence that, at the beginning of a book he wrote in 1971, Le Trosième Conflict Mondial, Esambert mentioned an old Saint-Simonian song, written by Rouget de Lisle, which glorified science and technology, as the new leaders of peoples after the so-called âge de l’obscurité. Rouget de Lisle, a French army officer, was the poet who wrote the words and music of La Marseillaise.

 Two facts that, symbolically, are certainly not by chance.

 After having been a mining engineer (and the engineering sector is traditionally a great area of recruitment for the intelligence Services and the French senior management) Esambert became a great commis d’Ėtat. Une vie d’influence, just to recall the title of one of his recent books, Une vie d’influence – dans les coulisses de la Ve République.

 Finally, Esambert became a point of reference for Georges Pompidou, who later called him to collaborate with him – as a man of influence – at the Presidency of the Republic.

 As Benedetto Croce – a too much forgotten philosopher – used to say, you can always and only implement “the possible liberalism”, well knowing that the real economy is made up of an agreement between private enterprise and State management, which is the one that always really counts.  

 It has always been and it will always be so. This is the first criterion for setting the scene of an economic warfare which – as Bernard Esambert himself noted for the first time – applies always and everywhere, and is never forgotten, unless severely defeated, even by the modern States that want to win a challenge that always lasts and has never one single face – a warfare, financial, technological, political, cultural and organizational one.

 The economic warfare worked well also in ancient Greece: the overpopulation in Athens; the need for commercial outlets in Central Asia; the expansion of Greeks to Southern Italy, where the Bruttians, after having taken their idols with them, hid in the mountains without ever seeing the sea again.

 The faces of economic warfare are always manifold and all of them always work. Whoever forgets some of them is always bound to lose.

 Certainly there are the current young and brilliant French analysts operating in the intelligence Services and the training sector, who belong to the Ėcole de Guerre Ėconomique (ĖGE) founded precisely by Esambert, based on an old idea developed by Christian Harbulot. There are also the new Italian initiatives in the academic world, all designed more to showing up and flattering the Heads of the intelligence Agencies, for whatever small favours – the usual and often imaginary “small powers” of the Italian academic world, always a bit stingy, after the long season of the roadshow organized by the Intelligence Department (DIS), at the time of the Interior Minister, Marco Minniti, as “Authority responsible for the Intelligence Services”, from 2013 to the end of Renzi’s Government.

 In this regard, we should also recall Ambassador Giampiero Massolo, who was the first supporter of the Italian intelligence services’ roadshow in the Italian academic world – now very badly damaged – more to improve the Agencies’ image than to really seek new recruits for the intelligence Services, which have always well selected their people inside and outside the universities, without any need for chattering or showing off.

 Moreover, as we all know, the young people who were recruited by means of the website sicurezzanazionale.gov.it were quickly dismissed from the Agencies and now vegetate in other sectors of the Public Administration.

 It is not a matter of “young” and “old” people or of creating some fashionable opportunities for declining universities, but rather of ensuring that the whole Italian ruling class endeavours for a well-designed and, above all, stable economic warfare.

 As far as I know, for the time being there exists only one specific Master in Economic Intelligence in Italy, organized by the Institute of High Strategic and Political Studies (IASSP) in Milan. I have been told that also Harbulot participated in it.

But once again, this has nothing to do with the decades-long tradition of intelligence and economic ruling class in France, Great Britain and even the United States, not to mention also the small countries that walked out from the Warsaw Pact, with great intelligence and efforts.

 It was Esambert himself, already present in an old but already usual and obvious Davos Conference – a now well-known fashionable meeting of those who believe they are authoritative people but, indeed, are nothing – who told about the exit of the old General Jaruzelsky, the strong man of the Polish counter-coup to avoid the occupation by a weak Warsaw Pact, when the old Polish General, whose right-hand man was a NATO spy, openly said he wanted Western investment in Poland and was also ready to progressively liberalize the zloty, as well as finally accept the Western business rules and Western capital coming to Poland.

 Obviously subject to the control of the old-but-new-regime.

 Here is the real success of an excellent economic warfare – not the many small stories that the globalized rich people usually tell to their useless and always gauchistes children, since it is fashionable.

  Incidentally, it should be recalled that even Adam Smith, the inventor of “political economy” according to the basic rules of the British global interests of his time, was a free trade theorist in the markets where Great Britain had to settle, but supported the strictest protectionism, just when it came to closing the national or colonial British markets to the attack of the cheap goods of European competitors and, later, of the 13 colonies that were to become independent on the East Coast of North America.

 Here, once again, the problem is scarcity, which just today – as always said by Esambert – seems far away, at least from what Mao Zedong called “the world’s metropolises”.

 However, there is instead the natural and induced scarcity. Nowadays we live in induced scarcity, which does not need wars “for raw materials” –  as the German geopolitics of the 1930s theorized – but it is the induced scarcity of modern consumption, which needs technology, expert management and States capable of expanding strategically, as well as modern factories. Here it is the new and inevitable economic warfare.

 Either we win or lose, but always continuously. In contemporary economic warfare, there is no “declaration of peace”. Quite the reverse.

 This is the real core of the issue. If we can no longer build monopolies by managing scarcity – as always happened when modern capitalism was established, according to  Adam Smith – how can we today favour the national companies and the typical products of our region, if there are no longer real trade wars, such as the penetration of the East India Company in the Far East and in China, or the British oil trade closures in the Middle East, to take Kurdish oil in Haifa when Churchill, as First Lord of the Admiralty, turned the British military navigation from coal into oil navigation, or the operations of the Belgian royal family alone in Congo, or the French possessions in Algeria, Morocco and Tunisia?

 The choice of Habib Bourghiba – Mussolini’s guest in Rome – to secretly deal with De Gaulle’s France Libre, when he realized that Rommel and his Afrika Korps were in disarray, can be considered a technique of economic and commercial warfare. He sold his Destour covert network, previously operating with the Axis, in exchange for independence, after the victory of the Western liberal democracies which Habib, indeed, did not like so much.

 Lacking a real effective and modern colonial experience, Italy still does not know how to export its productive potential, which is what really counts.

 From Giolitti’s to Mussolini’s time, Italy treated its colonies as simple ways out for the rural overpopulation, especially when the exit routes to the United States or South America were blocked.

 Italy made the only mistake it should not make.

 It even lost the Libyan oil, which was taken back only with the coup of Gaddafi, a creature of Italy’s intelligence Services.

 The Italian politicians currently in power support the idea of going abroad to transfer our potential for economic warfare either as door-to-door sellers of the all too famous Made in Italy – which, indeed, almost sells itself – or in search of external and distant areas where to make our agonizing small and medium-sized enterprises survive as long as possible, so as to squeeze every last drop of the labour cost differential.

 Either fashion, the brand – now in foreign hands – or begging to prolong the agony of some SMEs which are interesting for political, electoral and financial reasons.

 Two attitudes which are deeply wrong – precisely in substance. As Esambert used to say, every country goes to sell abroad certainly not to repeat the plot of the beautiful 1959 movie by Francesco Rosi, The Magliari, set – not by chance – in Germany, but to win and wipe out its competitors.

 This movie could teach much to the Italian politicians currently bleating for German “help”. They should watch it again and think about the behaviour of the two main characters -masterfully interpreted by Renato Salvatori and Alberto Sordi – who are defeated when trying to antagonize their Polish rivals, the previous “magliari”.

 You never go abroad to propose a factory or a business, but you always go – willingly or unwillingly – to propose a way of doing business, a success story, a lifestyle, a product that must therefore be ipso facto protected, supported, advertised – for which imitations must be stopped, on site and elsewhere, and for which it is necessary to create a stable dependence of the target country and a powerful image in the foreign market of reference.

 Nothing to do with the ramshackle, slow, inefficient, impolitic style – all aimed at simply making a deal, at striking a “bargain” – often characterizing our foreign policy, even in countries that Italy should tread very carefully and in which it should proceed with extreme caution.

 Foreign countries must be conquered with trade, exactly as they could be conquered with a real battled war, if this were possible today.

 In fact, every trade treaty is a peace treaty which, however, must clearly show the will of those who have won, i.e. – in Italy’s specific case – the productive system of those who have come from outside.

 Certainly, today even economic wars are no longer made – at least in principle – to support a market that can absorb our surplus.

 Marx’s old criterion of surplus value, which is certainly useful today as a way to analyse the evolution of modern capitalism.

 As Esambert always says, economic wars are made to create room – outside and inside the old national perimeter – for counteracting and fighting against everybody’s adverse actions – both friends and foes – in our productive system.

 Whoever loses faces – without time limits – the disasters of globalization (uncontrolled immigration, pollution, the classic combination of unemployment and inflation), while whoever wins offloads the problems on his global competitors.

  And again there is no time limit.

 When Spain was still under Franco’s regime, the State of Madrid created an instrument of economic warfare just with SEAT, in 1950, thanks to a small contribution of FIAT capital.

 Later in 1985, SEAT became part of the German group Wolkswagen Aktiengesellschaft – created on the basis of an old project by the Führer.

  The huge Catalan factory was inaugurated in Martorell by King Juan Carlos in 1993.

 FIAT left and VW came in powerfully, with no local or European competitors.

 Was it not an economic warfare operation? Of course it was.

 At that time, Italy was numbed with the Clean Hands judiciary probe and no one noticed that Germany was taking over Spain’s basic industries after the end of the Caudillo’s regime.

 This happened also in other parts of the world.

 Starting from the imprisonment and the related suicide of the old ENI President, Cagliari, until the never resolved issues of Gardini’s death, in the connection between the takeover of Montedison and the fanciful creation of Enimont, the whole Clean Hands judicial investigation was, however, an accelerated operation to sell off Italy’s primary industrial system, pending the fall of the Berlin Wall and the truly endogenous crisis of the Italian political system.

 There was, at first, the sale of primary assets, ranging from the motorway company Società Autostrade to the food holding  SME – of which I had a first-hand experience – and later the redesign of the system of bribes from companies to the political system, which began with ENI’s disruption following Cagliari’s imprisonment, until the creation of a new network of funding to a “new” political system, where all parties were renamed – according to a potentially two-party system – “progressive” and “conservative” or even “liberal”.

Was it not an economic warfare operation? Of course it was. Many large and small companies became attractive to large foreign investors that were favoured, while the Italian State-owned and private companies faded away, struck by the new moralists’ blows.

 What happened, at that time, in Mitterrand’s France or in the Great Britain led by Margaret Thatcher who, however, was ousted from Downing Street by a clique of Tories, involved in a large helicopter business affair?

 We can also recall Liu Tenan, the Chinese Head of the “Development Commission”, expelled from the CPC; Rouhani himself in Iran that saw the 1979 Revolution in danger because of corruption, or Ana Mato, the Health Minister who resigned because of the scandal that in 2014 sullied the reputation of the entire Partido Pupular in Spain –  not to mention the fact at least 2.3% of the world GDP fuels global corruption.

 Can we believe that all this came only from what had happened in Italy?

 Once again the usual moralistic parochialism sets in, a short-lived legacy of the snobbery of Italy’s old Action Party, whose liberal Socialism – taunted by Croce – led Italy to be a pale imitation of Great Britain, the eternal myth of all poor politicians and managers wearing grisaille suits.

 Hence the final formula: the mix of legal and non-legal, advertising, political, military, strategic and monetary protection and support for the local ruling classes, as well as the fair and rational relations with the target country, are called exactly “economic warfare”.

 There is no other way to make foreign policy and establish international relations, even non-economic ones. There is only and always economic warfare.

 Hence, after this explicit and direct phase of the inevitable economic clash for survival between nations, there is the phase in which “companies are used as armies and management and business schools are used as schools for officers”, and entrepreneurs and business leaders are seen as new generals. In fact Akira Kurosawa, the director of the movie Seven Samurai and a descendant from a Samurai family, wanted – in a later movie of 1980, Kagemusha (Shadow Warrior) – to describe Japanese business leaders as new Samurai.

 Every economic action is a “covert” act of war. Every act of war can also be turned into an economic action, which instead of being a cost – unsustainable in the long run – is a real bargain or can even become so.

 Economic warfare shifts the cost of operations onto the victim.

 Attractiveness and competitiveness are now complementary, while Italy is the 7th world exporter of goods, but it only ranks 18th in terms of Foreign Direct Investment (FDI) in the territory.

 The current FDI is an instrument of external hegemony, not a system of national power or of projection of our economic and non-economic power onto the countries that receive our goods or that – in any case – should consume them, instead of our competitors’ products.

 The economic warfare also stems from the fact that all the great Western countries produce more or less the same goods.

 Nevertheless, in Italy 43% of the companies currently listed on the Stock Exchange are owned by foreign businesses. Obviously, there is no direct correlation between the quality of management of the various industries and their ownership. However, do you believe that if a French bank manager has to organize a strategy for his own company, he will pay heed to the large multifarious group of his small investors – as currently happens in Italy – or will he rather consider the ideas coming from some State think tanks in Paris, or possibly from one of his Ministers, or even from a colleague in Lyon or Grenoble?

 According to the 2018 data, in Italy the foreign investors’ shareholdings of listed companies currently amount to 196.4 billion euro, i.e. 43% of the total.

 The shareholdings of listed joint stock companies owned by Italian businesses are worth 25.8%, with the State holding 2.7% of the total portfolio. Hence it is certainly not difficult to imagine that, in this framework of international economic equilibria, Italy would have an extreme need for a policy of economic warfare.

 This also applies to cultural or humanitarian operations.

  Goodness knows what the organization Mèdecins sans Frontières was for France, or the management of the U.S. or Canadian grain overproduction was for the U.S. power projection policy in third countries or in those suffering humanitarian crises.

 Whoever eats your wheat becomes your friend, whoever is saved by your doctors will never make war on you but, above all, will gladly buy your products, when the crisis is over and France or the United States will present local governments with the bill for its humanitarian operations.  

 Moreover, in 2011 the Italian multinationals were as many as 6,500 Italian, while currently they are decidedly fewer and often smaller.

 Not to mention Italy’s cultural and hegemonic penetration – virtually nothing, apart from a few old-style and ramshackle elite operations for socialites.

 We need more than beautiful girls, superstar chefs or art exhibitions. It takes guts to penetrate and hegemonize a distant market. It is an operation in which companies and the intelligence Services shall participate simultaneously, and shall be ever less tied to the cliques of revolving-door government and also less parochial in their actions. Even humanitarian organizations, some universities – less familist than usual – as well as the fashion world, newspapers, TV networks, cinema and all the many other instruments of attraction and seduction shall take part in this operation.

 An operation which, however, must be stable and well-designed, otherwise we risk repeating what happened when an Italian President of the Republic, while visiting the Chinese Great Wall, learnt that the German Prime Minister was coming for a flying visit to Beijing so as to sign an agreement between the German and Chinese large car manufacturers.

 A dinner, some greetings and a quick return to Berlin.

 Unless the full criterion of the “economic warfare” is followed –  as must be done according to Bernard Esambert’s guidelines – Italy will always be relegated to the sidelines of the great global economic development and it will not reap the fruits but only the damage of globalization – as is already currently happening.

Advisory Board Co-chair Honoris Causa Professor Giancarlo Elia Valori is an eminent Italian economist and businessman. He holds prestigious academic distinctions and national orders. Mr. Valori has lectured on international affairs and economics at the world’s leading universities such as Peking University, the Hebrew University of Jerusalem and the Yeshiva University in New York. He currently chairs “International World Group”, he is also the honorary president of Huawei Italy, economic adviser to the Chinese giant HNA Group. In 1992 he was appointed Officier de la Légion d’Honneur de la République Francaise, with this motivation: “A man who can see across borders to understand the world” and in 2002 he received the title “Honorable” of the Académie des Sciences de l’Institut de France. “

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Future Economy: Micro-Manufacturing & Micro-Exports

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Recovery now forces economies to emerge as dynamic entrepreneurial landscapes; today, the massively displaced working citizenry of the world may not return to old jobs, but with little help slowly shifting towards entrepreneurial startups as new frontiers to create economic independence and increased local grassroots prosperity. Today, the latest global influences of trendy entrepreneurialism optimizing available options like high quality “Micro-Manufacturing” and high value added “Micro-Exporting” now common discussions on the main streets of the world.  Although, this is not an easy task, but still very doable for so many and promises local uplifts. Smart nations are awakening to such bold notions and entrepreneurial driven agencies mandated to foster local economies are using virtual events to rise up with global rhythm and rich contents.

 Therefore, the blueprints and new models of today on upskilling SME exporters and reskilling for better-designed manufacturing, nation-by-nation and city-by-city are mobilization ready ideas to optimize abandoned talents. Nevertheless, such upskilling and reskilling of masses demands already skilled leadership of most of the gatekeepers of local economic development venues. 

Furthermore, global competitiveness has raised the bar and now only high quality value added goods and services traded for the wide-open world. The conveyer belts of technology and zoomerang culture of virtual connectivity flourishes platform economies. Missing are the advanced skills, complex problem solving and most importantly national mobilization of entrepreneurialism on digital platforms of upskilling to foster innovative excellence and exportability. SME and Startups must advance on global thinking, optimize access, and maximize image and quality superiority to reach the farthest markets with deeper pockets.

This is not an easy task. Methodical progressions needed. Study how Pentiana Project tabled advanced thinking on such trends during the last decade. Export Promotion Agencies, Chambers of Commerce, Trade Associations and most SME and midsize economic developments bodies all called for bold and open debates. For fast track results, follow the trail of silence and help thought leadership to engage in bold and open debates and give them guidance to overcome their fears of transformation.

Small enterprises must now open to new world of 200 nations and 10,000 cites

Micro-Exporters: Upskilling Startups to think like global exporters; the pandemic recoveries across the world coping with a billion displaced all have now critical needs of both upskilling and reskilling. Upskilling is the process of learning new skills to achieve new thinking. Reskilling is the process of learning new skills to achieve new performances. What is exporting, how to start at micro-levels and how to expand globally with technology are new challenges and promising options.

Micro-Manufacturers: Reskilling Startups to think like smart manufacturers; the real goals for startups to enlarge and base thinking on reskilling for “real value creation” becomes mandatory. How to start by thinking better, design quality with creative global age strategies and advance?  Advanced Manufacturing Clusters in various nations will greatly help, but understanding of global-age expansion of value offerings with fine production is a new art and commercialization to 200 nations a new science.

The future of economies, The arrival of Virtual leadership and Zoomerang culture is a gift from pandemic recovery, although at infancy, the sector will not only grow but also alter global commerce for good. Once successful the traditional advertising and marketing models dying, direct access live interaction is now far superior to mass-mailing and social media screaming.  The zoomerang impact of global thought leadership now forcing institutions to become armchair Keynote speakers and Panelists to deliberate wisdom from the comfort of their homes round the clock events has arrived.

The Difficult Questions: Nation-by-nation,when 50% of frontline teams need ‘upskilling’ often 50% of the back-up teams need ‘reskilling’ so how do you open discussions leading to workable and productive programs? Each stage challenges competency levels and each stage offers options to up-skill for better performances. Talent gaps need fast track closing and global-age skills need widening. New flat hierarchical models provide wide-open career paths and higher performance rewards in post pandemic recovery phases. When executed properly such exercises match new skills and talents with the right targeted challenges of the business models and market conditions. The ultimate objective of “extreme value creation” in any enterprise must eliminate the practices of ‘extreme value manipulations”.

First Three Steps:  In order to mobilize a startups revolution along with a small medium business economy, start by identifying 1000 to 10,000 high enterprises anxious to grow for national global markets. To quadruple exportability, select a small leadership team, from local trade Associations, Economic Development Bodies and Chambers of Commerce responsive to calls of upskilling and reskilling as critical steps. Suggest roundtable discussions to reach local, national or global audiences to spread the message. Explore such superior level debates to mobilize local businesses.  Most importantly, such mobilizations are not new funding dependent they are deployment hungry and execution starved. Futurism is workless, uplifting mental powers towards better value-added production of goods and services will save economies.  Optimize zoomerang culture and use virtual events to raise the bar on thought leadership. The world is moving fast and best to join the pace.

The rest is easy

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Portugal’s crisis management: “Economic patriotism” should not be tied to ideological beliefs

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The economic policy of the Hungarian government has provoked fierce criticism in the last decade, as it deviated from the neoliberal mainstream and followed a patriotic path, putting Hungarian interests in the foreground. While many link this style of political economy to the conservative position of the Orbán-government, in Portugal, a left-wing administration followed a similarly patriotic line to overcome the symptoms of the Eurozone crisis, showcasing that economic patriotism is not tied to ideologies, but is merely responsible thinking.

The catastrophic path of austerity

According to the theory of austerity, the government by implying austerity measures, “puts its finances in order”, hence the state does not become indebted and consequently investors’ confidence in the economy returns. However, if we think about what we really mean by austerity (tax increases, wage cuts, budget constraints, etc.), even the theory itself sounds counterproductive. Not surprisingly, this theoretical counter productivity has been demonstrated in practice in several cases.

One of the best examples is the case of Portugal, which along with Greece and other Southern-European nations was probably hit the hardest by the financial crunch. While all of the “GIPS” (Greece, Italy, Portugal, Spain) entered a steer recession, Portugal somehow managed to overcome it more successfully than its regional peers, but before that, it felt the bitter taste of neoliberal structural reforms.

Although the case of Portugal was not as traumatic as the ones of its Southern-European counterparts, in order to keep its debt under control, stabilize its banks and introduce “growth-friendly” reforms, Lisbon negotiated a € 78 billion bailout package in 2011, in exchange for a rigid austerity program aimed at the 2011-2014 period, orchestrated by the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB), the infamous “Troika”.

The neoliberal recipe did not differ much from that of Greece, and the then ruling Passos Coelho conservative government faithfully followed the structural reforms demanded by the “group of three”: working hours increased, number of bank holidays fell, holiday bonuses were abolished, wages and pensions have also been cut by 20 per cent, while public spending on health and education was drastically cut, and due to escalating privatizations, public assets have also been sold off quickly.

Despite the fact that by 2014 the country’s budget deficit as a share of the GDP had fallen to 4.5 per cent from the staggering11.2 per cent recorded in 2011 and the current account showed a surplus – as domestic demand fell apart, forcing companies to export –Portugal was still on the brink of social and economic collapse.

Public debt soared to more than 130 per cent of the GDP, tens of thousands of businesses went bankrupt, unemployment rose to 17 per cent and skyrocketed to 40 per cent amongst the youth. As a result, many talented Portuguese fled abroad, with an estimated 150,000 nationals emigrating in a single year.

The post-2015 turnaround

Things only began to change in 2015, when the Portuguese elected Anotnio Costa as Prime Minister, who was the mayor of Lisbon under the years of the crunch. Shortly after his election, Merkel encouraged the center-left politician to follow the neoliberal prescription proposed by the “Troika”, while her Finance Minister, Wolfgang Schäuble, underlined that Portugal would make a “serious mistake” if it decided not to follow the neoliberal doctrine and would eventually be forced to negotiate another rescue package.

Not being intimidated by such “threats”, Costa ditched austerity without hesitation, restored working hours, cut taxes and raised the minimum wage by 20 percent in the course of just two years. Obviously, his unpopular position made him crush with Brussels, as his government allowed the budget deficit to reach 4.4 per cent, compared to the agreed 2.7 per cent target. However, in May 2016, the Commission granted Costa another year to comply, and since then Portugal has consistently exceeded its deficit targets.

Tourism also largely assisted the post-15 recovery, to which the government placed great emphasis, so that in 2017 the number of visitors rose to a record high, reaching 12.7 million. Concurrently, Portugal has significantly improved the international reputation of its businesses and products, which contributed to increasing the country’s export revenues and attracting foreign investment.

Furthermore, Costa has raised social spending and at the same time planned to invest state revenues in transport, environmental infrastructure and energy, initiatives that could be extremely beneficial, as they would not only significantly improve the country’s sustainability, but also boost job creation, something that yet again indicates how important public investment is to an economy.

Additionally, Portugal has become an undervalued tech-hub, with plenty of start-ups offering good employment opportunities in addition to fostering innovation. The government with several initiatives, seeks to create a business-friendly ecosystem for them, under which they can thrive and boost the economy to the largest extent. It is thus not surprising, that Portugal has been the fastest growing country in Europe when it comes to the number of programmers.

Finally, one of the Costa’s top priorities, has been to lure back emigrated Portuguese who moved abroad during the crisis. To this end, tax cuts are offered to Portuguese citizens who choose to return home.

In a sum, since Costa stepped into office, Portugal has undergone a rapid recovery: economic growth has returned, unemployment has fallen radically, the public debt was also set on a downgrading path, while the budget remained well-balanced despite the increased spending, with Costa himself explaining that “sound public accounts are compatible with social cohesion”. Even Schäuble acknowledged Portugal’scrisis management, by actually calling Mário Centeno – the finance minister of the Costa government – the “Cristiano Ronaldo” of finance ministers.

Of course, not everything is bright and wonderful, as the country has emerged from a large crisis, the effects of which cannot be eliminated in just a few years. Public debt is still amongst the highest in the EU and several other challenges lie ahead for the South-European nation, especially by taking into consideration that the world economy just entered yet another crisis.

Furthermore, according to many, it was not Costa who led the recovery, but Portugal passively benefited from a strong recovery in Europe, falling oil prices, an explosion in tourism and a sharp drop in debt repayment costs. Indeed, it has to be taken into account that Portugal entered the recession in a relatively better position than many of its spatial counterparts and the relatively high quality of its domestic institutional infrastructure and policy-adaptation capacity aided the previous government to efficiently complete the memorandum of understanding (MoU) as early as 2015. Nevertheless, this is not a sufficient reason to discredit the post-2015 government’s efforts and justify the harsh austerity measures implied by the Troika. Taking into account that austerity never really provided decent results, it becomes evident that Costa’s policies were quite effective.

Economic patriotism should not be connected to ideologies

While in the case of Hungary and Poland “economic patriotism” has been fiercely criticized despite its prosperous results, this spite tendency has been an outcome of strong politicization in economic policy analysis. Even though the political context is verily important, it is also crucial to interpret economic policy independently, in order to take away valuable lessons and identify mistakes. Political bias is not a fortunate thing, as it is absolute and nullifies debate and hence development.

The case of Portugal is a perfect example, as it provides sound evidence, that a patriotic economic policy can be exercised by governments from all across the political spectrum and that the notion should not be connected to political and ideological beliefs. The left-wing Costa-government with its policy-making demonstrated that a solution always exists and that requires a brave, strong and decisive government, that pursues its own plan in the interests of the ‘patrie’, regardless of its positioning.

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The Question Of Prosperity

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Galloping economic woes, prejudice, injustice, poverty, low literacy rate, gender disparity and women rights, deteriorating health system, corruption, nepotism, terrorism, political instability, insecure property rights, looming energy crisis and various other similar hindrances constrain any state or country to be retrograded. Here questions arise that how do these obstacles take place? How do they affect the prosperity of any country? No history, geography, or culture spawns them. Simply the answer is institutions that a country possesses.

Institutions ramify into two types: inclusive and extractive. Inclusive political institutions make power broadly distributed in country or state and constrain its arbitrary exercise. Such political institutions also make it harder for others to usurp rights and undermine the cornerstone of inclusive institutions, which create inclusive economic institutions that feature secure property rights, an unbiased system of law, and a provision of public services that provide a level playing field in which people can exchange and contract; it also permits the entry of new businesses and allow people to choose their career. On the contrary, extractive political institutions accord clout in hands of few narrow elite and they have few constrains to exert their clout and engineer extractive economic institutions that can specifically benefit few people of the ruling elite or few people in the country.

Inclusive institutions are proportional to the prosperity and social and economic development. Multifarious countries in the world are great examples of this. Taking North and South Korea; both countries garnered their sovereignty in same year 1945, but they adopted different ways to govern the countries. North Korea under the stewardship of Kim Il-sung established dictatorship by 1947, and rolled out a rigid form of centrally planned economy as part of the so-called Juche system; private property was outlawed, markets were banned, and freedoms were curtailed not only in marketplace but also in every sphere of North Korea’s lives- besides those who used to be part of the very small ruling elite around Kim Il-sung and later his son and his successor Kim Jong-Il. Contrariwise, South Korea was led and its preliminary politico-economic institutions were orchestrated by the Harvard and Princeton-educated. Staunchly anticommunist Rhee and his successor General Park Chung-Hee secured their places in history as authoritarian presidents, but both governed a market economy where private property was recognised. After 1961, Park effectively taken measures that caused the state behind rapid economic growth; he established inclusive institutions which encouraged investment and trade. South Korean politicians prioritised to invest in most crucial segment of advancement that is education. South Korean companies were quick to take advantage of educated population; the policies encouraged investment and industrialisation, exports and the transfer of technology. South Korea quickly became a “Miracle Economy” and one of the most rapidly growing nations of the world. Just in fifty years there was conspicuous distinction between both countries not because of their culture, geography, or history but only due to institutions both countries had adopted.

Moreover, another model to gauge role of institutions in prosperity is comparison of Nogales of US and Mexico. US Nogales earn handsome annual income; they are highly educated; they possess up to the mark health system with high life expectancy by global standards; they are facilitated with better infrastructure, low crime rate, privilege to vote and safety of life. By contrast, the Mexican Nogales earn one-third of annual income of US Nogales; they have low literacy rate, high rate of infant mortality; they have roads in bad condition, law and order in worse condition, high crime rate and corruption. Here also the institutions formed by the Nogales of both countries are main reason for the differences in economic prosperity on the two sides of the border.

Similarly, Pakistan tackles with issues of institutions. Mostly, pro-colonial countries are predominantly inheritors of unco extractive politico-economic institutions, and colonialism is perhaps germane to Pakistan’s tailoring of institutions. Regretfully, Pakistan is inherited with colossally extractive institutions at birth. The new elite, comprising civilian-military complex and handful aristocrats, has managed to prolong colonial-era institutional legacy, which has led Pakistan to political instability, consequently, political instability begot inadequacy of incentives which are proportional to retro gradation of the country.

Additionally, a recent research of Economic Freedom of the World (WEF) by Fraser Institute depicts that the countries with inclusive institutions and most economic freedom are more developed and prosperous than the least economic free countries; countries were divided into four groups. Comparing most free quartile and least free quartile of the countries, the research portrayed that most free quartile earns even nine times more than least free quartile; most free quartile has two times more political and civil rights than least free quartile; most free quartile owes three times less gender disparity than least free quartile; life expectancy tops at 79. 40 years in most free quartile, whereas number stands at 65.20 in least free quartile. To conclude this, the economic freedom is sine quo non for any country to be prosperous, and economic freedom comes from inclusive institutions. Unfortunately, Pakistan has managed to get place in least free quartile.

In a nutshell, the institutions play pivotal role in prosperity and advancement, and are game changer for any country. Thereby, our current government should focus on institutions rather than other issues, so that Pakistan can shine among the world’s better economies. For accomplishing this highly necessary task government should take conducive measures right now.

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