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Countries should resist the protectionist urge after COVID-19

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Authors: Nicholas Ross Smith andZbigniew Dumienski*

One of the most worrying trends in the global response to the COVID-19 pandemic has been the retreat of countries from participating in the so-called “international community”. Certainly, the threat of COVID-19 has resulted in extreme measures like the closing of borders and increasing centralization of politics at the country-level. However, these measures have also been accompanied by enveloping anxiety and paranoia, both of which significantly inhibit a truly cooperative international response to the crisis.

Troublingly, isolation, it seems, is not just a strategy for defeating COVID-19 but also the default mode countries are adopting with regards to international relations at this moment. 

This ‘protectionist turn’ is hardly surprising. Dissatisfaction with globalization has been rising exponentially in over the last two decades, most notably stoked by the global financial crisis. Even in the United States, a country which benefited tremendously from the deepening of global trade and finance, protectionist tones were arguably a key element of Donald Trump’s election victory in 2016. And Trump, to an extent, followed through with this protectionist bent in his policymaking since, notably the trade war the United States has been engaging in against China.

At first glance, it may seem odd that globalization, or trade liberalisation more broadly, has been attracting so much criticism because this era of globalization – often referred to as the third wave of globalization – has brought with it incredible material benefits to developed and developing countries. For instance, the percentage of people worldwide living in absolute poverty has dropped from 37% in 1990 to under 10% in 2020, while at the same time, the global population has increased by roughly 2.4 billion in the same period. 

But, simply evaluating globalization in broad metrics ignores the more important question of power, both domestically and internationally. While it is true that free trade in goods and services between willing parties can be beneficial to everyone, this recent era of globalization arguably has relatively little to do with such genuinely free exchanges.

Far from simply allowing all people to trade freely, the current set of international regimes and treaties, which govern international trade, is of primary benefit to those entities that are large enough to be able to afford to adhere to them. Likewise, domestic rules and regulations create conditions in which large companies are preoccupied more with cutting the cost of labour (heavily taxed in the West), than with reducing the pollution that is the inevitable cost of transporting goods across the world.

Furthermore, this era of globalization has not just resulted in a proliferation of free trade in goods and services globally but, more insidiously, the acquisition of all sorts of monopoly privileges by the most powerful entities and individuals, with land ownership arguably being the most significant and glaring example.

Labour products wean out, but privileges are forever. The idea that free trade enriches people in both countries do not consider trade that turns one country into tenants of another country, person or corporation.

We must, therefore, remember that globalization is not a natural phenomenon, but a phenomenon that is influenced by both domestic and international power struggles. Not surprisingly, a crisis of this magnitude is bound to affect the power dynamics that have shaped how our world has become globalized.

With regards to COVID-19, globalization has been cited as a major contributing factor to the difficulty countries have had in initially fighting the pandemic. One glaring example of this has been the global reliance on China for the key medical supplies needed to reduce the contagiousness of COVID-19, such as masks and sanitizer chemicals. Once COVID-19 forced China into lockdown, global supply chains were halted, leaving numerous countries unable to access the supplies needed in combatting the outbreaks they were experiencing.

Even after China managed to contain the spread of COVID-19 by late February which enabled them to significantly increase the production of the medical supplies needed in the frontline fight against the pandemic, issues have remained. Although China’s humanitarianism in places like Italy and Spain deserves praise, some issues have arisen such as some Chinese producers have been accused of auctioning off supplies to the highest bidder. Furthermore, the quality of the products China is providing has come under the microscope, with numerous examples of faulty medical supplies being returned.  

Globalization is painted as the underlying problem in all of this, but the reality is that much of the problem stems from a mutated version of globalization – examined above – that has come to dominate the international community, not globalization itself. But, the two are so intertwined in dominant discourses that protectionist responses to the crisis become attractive, especially to those that have suffered the most from globalization over the years. 

If globalization is bad, then what is good? Well, protectionism seems to be a popular answer being touted now. Protectionism has always been appealing to populations because, on the surface, it seems like a positive case of a government using its power to “protect” the most vulnerable within a country. But, as Henry George stated: “What protection teaches us, is to do to ourselves in time of peace what enemies seek to do to us in time of war”.

The surging protectionist sentiment after COVID-19 is spiralling out of control in some areas. And while, in the short-term, countries will certainly be forced to fend for themselves by becoming somewhat insular, they cannot be sucked into to thinking this is a viable model for the long-term.

One only has to look at Albania during the Cold War to see the folly out of control protectionism can breed. Partly due to the anxiety and paranoia of the Cold War, the Albanian Communist leader Enver Hoxha took the desire to be “self-sufficient” to the extreme, attempting to completely disengage Albania from the international community and pursue a policy tantamount to autarky. This was not simply symbolic posturing as by the mid-1980s, foreign trade accounted for merely 6% of GDP and Albania received zero foreign assistance (Albania had been previously heavily dependent on the Soviet Union and then the People’s Republic of China).

Despite nearly implanting a complete autarky, this policy was disastrous for Albania. One of the big problems was that Albania was a largely agricultural society and had not experienced significant industrialization. Albania barely produced any machinery and the capital goods they had were mostly Soviet-made from the 1950s. As a result, Albania was left to wallow for decades in poverty without any improvement of economy or life, representing, by far, Europe’s poorest country at that time. 

Communist Albania is an extreme example, but it is still a useful warning to countries which are facing increased pressure from within due to COVID-19 to become more “self-sufficient”. And while it is understandable that the COVID-19 pandemic necessitates a temporary restriction on the movement of people, it does not also have to result in the restriction of the global trade of goods and services.

Unlike in the case of past epidemics, there is now the technological capabilities to purchase goods and services directly from suppliers across the globe from within the comfort of our home. The fact that we still buy so many goods in brick and mortar shops is mostly a matter of habit than necessity. And the fact we still require countries to facilitate trade is also not a necessity.

In this context, COVID-19 could represent a critical juncture where newer, more appropriate and efficient forms of trade are established. Given the potential economic fallout that might occur due to the pandemic, radical ideas are surely needed to kickstart economic exchange. For that to occur, however, we need responsible leadership that sees trade as being an activity between people and companies, rather than perpetuate this dated idea of trade being some that should be predominately managed country-to-country.

COVID-19 also shows us that we need far more meaningful global cooperation and burden-sharing. Even the wealthiest countries with the best healthcare suffer if one country cannot contain an illness (because of poverty or incompetence). We are used to this argument in military terms. A failed state is a threat to all neighbours due to refugees, violence etc. But now maybe this thinking can extend to other areas. The real challenge is though how to boost global collaboration in a democratic and accountable way?

Protectionism is not the answer.

However, giving the growing centralization of countries and the growing protectionist sentiment in many populations, it is likely that the opportunity to reinvigorate globalization will be lost, and an era of growing protectionism and mercantilism will be upon us in no short time.  This will only compound the pain of COVID-19 in the short-term while further muddying the long-term forecasts of international relations, most notably the looming US-China great power competition.

*Zbigniew Dumienski, PhD graduate in International Political Economy from the University of Auckland, New Zealand

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EEU: An Irrelevant Anachronism or a Growing Digital Enterprise Dynamo?

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A commonwealth of interests

The search for a stable Eurasia depended on the effectiveness of a durable system for the post Soviet space which could easily descend into an arc of instability if was not properly managed. Moscow had to be careful not to view these ex Soviet countries as its natural hinterland to be taken for granted and to upgrade its relations with each of them to preserve a communality of interests that had eluded it in Ukraine. The world of the command economy centred on Moscow would be made over on an entirely new basis that reflected the fast moving 21st century digital economy. Where common standards and freedom of movement of people and capital was meant to create a climate of openness and facilitate cross border business not to seal off Eurasia from the outside world. The fragile nature of post Soviet identities meant that a sense of commonwealth and common citizenship rooted in an overarching Eurasian identity would be more appealing to a growing entrepreneurial class disillusioned with the results of narrow ethno- nationalism as a ruling idea. The danger was that the more the Eurasian Union grew in stature it would have to navigate roadblocks deliberately placed there by powerful nationalist interests who perceived it as threat to their power base. And by stoking tensions with Russia periodically these former Soviet states could remind the outside world that they were not tame satellites of Moscow or artificial constructs but were free to decide their own destinies.

The path to some kind of durable Eurasian concept was obstructed by the reluctance of many Eurasian states to give up on the idea that eventually find a place in the west. The Eurasian union might be a useful stopgap while they waited to the privileged world of the west where they felt they ultimately belonged. Even though the chances were slim that it would ever happen. The Russian view of the Eurasian Union was that it would be a modernizing force which would have the express aim of bringing the region closer to the world and transforming it into a forward thinking technological giant. It would not be a repeat of the “Soviet experiment” which was a parallel universe closed to outsiders with information tightly controlled. And with the official version vastly at variance with the grim reality. Its core vision this time around was to effectively connect the region to the outside world and be at the forefront of new innovation. It would not depart from international standards and go off on its own tangent or conduct its affairs with guarded secrecy. But happily embrace new ideas and fresh thinking. Russia’s objectives were to circumvent parochial state leaderships and local bureaucracies and create a global brand that would capture the imagination of high net worth investors and provide a real alternative to pro western orthodoxy. With first class transport, logistics and a digital economy that would be the envy of the world, it would be first and foremost technocratic and meritocratic and not so much ideological in nature.

The Russian leadership concentrated on achieving maximum consensus in decision making and adopting policy positions where the weaker states would not be unfairly disadvantaged. While Russia would be providing the bulk of the digital infrastructure and at its own expense it would be considered common property of the Eurasian economic union in many ways. Russia’s contribution was based on a more generous model than its Chinese partner which took the form of loans that could result in forfeiture of assets if loan payments were not met in time.

Digital future

Thus Russian prime minister Mihail Mishustin recommended at a meeting of the inter Government commission implementing a “digital project” across the whole Eurasian union. This would provide a “specialist information system” in the sphere of “migrant labour” that would better serve the needs of business and the migrant communities. These measures would seek to gradually phase out and replace the patchwork, confusing system of regulations with a common framework. So for example in future the EEU would receive powers that would promote standardization. The Eurasian commission adopted a new technology based system of labelling products that “would apply in future in relation to new categories of labelled products.” The prime ministers of the EEU states approved a document that would “establish a time limit by which member states would be notified of the intention to introduce labelling on their territory.” And would give them a “period of nine months to outlaw unlabelled products.”  The new system should eventually be incorporated fully at the national level so that business could “escape unnecessary burdens” caused by “different systems of control.” and gradually filter out bureaucratic anomalies.

The priority was to create a level playing field so that the EEU was not perceived as just an exclusive club for Government connected state companies. But that it would also create conditions for small and medium enterprises to thrive and expand and ease substantially the costs of doing business. As well as reversing the favouritism traditionally shown to large companies by making the ability of SME’s to operate in an environment that was transparent and equitable more concrete. For example the prime ministers of the EEU states agreed to a “unified ecosystem of digital transport corridors”. The total cost of the scheme would be around 10 billion roubles. The cost divided between the union and the member states. It would provide a “service for the access of electronic route maps, international transport charging rates” as well as electronic protocols that would give updated information on interior ministry regulations etc. This unified system was especially useful to SME sector who were often reliant on “outside platforms” which were often “not connected to each other” and ” the absence of coordination added to their logistical costs.”

Open banking

Similarly the five member states of the EEU have agreed to form a common financial market by 2025. A key role in this is played by financial technology which will be deployed to make financial services “more accessible, cost favourable and safer”. Private and business customers can expect “financial services of higher quality and greater choice to be available”. And with such a hi tech financial monitoring tool at the authorities disposal “credit and financial institutions will have to reveal the origin of their capital”. An important element was the Application Programming interface which gave the programme the capacity to conduct biometric identification and to connect IT systems together so “they can exchange information between themselves.” Also a pilot project was launched which the AFT system together with 13 Russian banks were undertaking. “The aim of it is to improve automated online credit lending for small and medium businesses.” And create a level playing field. This was another example of how the Eurasian Union was preparing the ground for a greater role for the more dynamic and innovative SME sector in anticipation for a shift from a resource based economic model to a more diverse demand and consumption one.

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Capitalism and the Fabrication of Food Insecurity

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Human security can be depicted as the notion through which the widespread and cross-cutting challenges to the survival, livelihood and dignity of individuals can be identified and protected. In simpler words, folks are protected against threats and situations that deem to violate their vital human rights. Thus, with human security, the protection and empowerment of people is promoted. With that said, under the umbrella of human security, food security holds immense significance; as, it is responsible for sustaining human life and health. In addition to that, it also stipulates individuals on the required energy for progression, resulting in the evolution of state institutions and its functioning. Henceforth, food security has a direct co-relation with the development of a state.

Notwithstanding, the lack of access to sufficient quality of affordable food results in food insecurity, which can be depicted in several states and communities across the globe. However, contrary to popular belief,this food insecurity is not a subsequent of scarcity; in fact, the annual production of food surpasses the benchmark of sustaining one and a half times more food for the world’s entire population. In reality, the scarcity narrative was produced by corporate food regimes to serve their interests through capitalism. Since, it can result in the incorporation of price increase and generation of maximum profit, indicating how the agricultural sector is influenced by the interests of elite companies. In fact, the top eight firms in agriculture hold 80% of the sector’s market share, and these particular institutions dictate the conditions and rules for our food system, while effectively setting the price of grain for the world subsequent to their benefits. As a result, several regions of the world experience food insecurity, which essentially tarnishes their road to progression.

Through capitalism, food has transformed from a necessity into a commodity, solely for the purpose of profiting from its high demand. This denotes the horrors of capitalism; because, profits are given priority over human needs. Due to this lust for profit, corporate food regimes initiated the “Green Revolution” in the 1950s and 1960s. On the surface level, the movement consisted of the development of new disease-resistant strains of food crops, primarily wheat and rice. The incentive was to increase crop yield in the developing world, through countries such as India and Mexico. Nevertheless, beneath the surface, this movement led to an increase in food insecurity and served the interests of the elite. The green revolution led to the introduction of subsistence farming systems, in the form of new technology. However, in order to adapt to this system, farmers required cash to buy seeds, fertilizers and equipment, along with the continuous supply of cash to maintain them. Meaning, the farmers could not rely on eating their own produce and selling the surplus. Instead, crops had to be traded with agricultural corporations, in order to continue to earn a living through farming. Thus, the green revolution did not lead to improving small-scale farmer productivity. In fact, it monopolized the agricultural sector and consolidated the profit in the hands of specific transnational corporations. The companies in turn influenced the agricultural market to their benefit, leading to food insecurity.

Furthermore, food insecurity is a result of the systematic failure of capitalism. One of the ways to attain maximum wealth for agricultural corporations and their shareholders, is through over production. Hence, these companies set a fix price for the farmers cost. In this manner, farmers cannot produce less crops despite declines in agricultural markets. As a result, crops are over produced and their market price declines. In order to cover the fixed costs, the farmers have to carry out more production, which puts them in perpetual debt. In addition, with over production, goods pile up unsold, workers are laid off, demand drops and prices of products increases, resulting in lack of access for poor people.

A country fighting against the influence of the corporate food regime is India; as, Indian farmers in Punjab and Haryana have carried out mass protests recently. Reason being that the Indian Parliament has passed three agriculture acts—Farmers’ Produce Trade and Commerce (Promotion and Facilitation) Act, 2020, Farmers (Empowerment and Protection) Agreement of Price Assurance, Farm Services Act, 2020, and the Essential Commodities (Amendment) Act, 2020. Since Modi’s regime favors the interests of the elites and the corporate regimes, these laws have made farmers of India vulnerable to exploitation and the prevalence of food insecurity. Firstly, the laws aim to remove the agricultural produce market committee (APMC), which is the area that regulates the notified agricultural produce and livestock. Through the APMC, traders were provided with licenses and a minimum support price for crops was set. As a result, corporations could not dominate the agricultural sector; however, the new laws challenge that very concept. Even though the Indian government has argued the changes will give farmers additional freedom, the farmers claim that the new legislation shall eliminate the safeguards set to shield them against corporate takeovers and exploitation. Therefore, the monopolization of corporate regimes in the Indian food system shall further devastate the livelihoods of vulnerable communities, and the food insecurity will prevail.

As a solution to food insecurity arising from capitalism, a reappearance in the pre-capitalistic reality should occur, where food is not bought and sold to the highest bidder. Instead, food is sold outside exclusive markets as a basic right of all citizens of a state. This system can be regarded as the system of communal responsibility. The success of which can be traced back to the era of empires, where individuals did not experience food insecurity despite the rise and fall of empires. Proving how, co-operative production and fair distribution of food is possible. Hence, in conclusion, food insecurity is a fabrication of capitalism and the interests of corporations; where, wealth is saturated in the elite class. Accordingly, the solution is to return to the pre-capitalist reality and focus on communal responsibility. 

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China’s Emerging Diamond Industry

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Since the 1980s, China’s economy has been on the rise. With a prosperous manufacturing industry, China has a growing middle class and an ever-increasing demand for luxury goods. Compared to Russia, China does not have large diamond reserves. However, the country makes up for its lack of resources by gaining access to diamond reserves in Africa and producing affordable synthetic diamonds.

The Underdevelopment of China’s Diamond Industry

China’s diamond industry is underdeveloped due to lack of resources in diamond mines domestically and overseas. According to a report by Frost & Sullivan in 2014, China is still developing its overseas diamond market, and only a few companies have access to diamond mines.

According to the F&S, Chow Tai Fook, a Hong Kong-based jewelry chain is the only Chinese company that has obtained the DTC (The Diamond Trading Company) qualification of distributors. As a subsidiary company of De Beers, the DTC sorts, values and sells about 35% of the world’s rough diamonds. As a renowned company in the industry, Chow Tai Fook has its diamond polishing factories to source rough diamonds from mining companies directly. It also has supply agreements with Rio Tinto, Alrosa and De Beers. Chow Tai Fook has four diamond cutting and polishing factories—two in South Africa, one in Botswana, and another in China. However, for other renowned Chinese companies on diamond processing, such as Henan Yalong, or CR Gems, they cannot purchase rough diamonds directly from the market, so they mainly produce synthetic diamonds. Even if they are to process rough diamonds, they can only purchase raw materials from secondary markets, where the price of rough diamonds is high, leading to even higher production costs.

By contrast, India, the world’s largest diamond processor, has more than 60 companies with the DTC qualification of distributors. India also has access to a number of essential diamond mines. For a long time, India has relied on suppliers from Russia and Africa and diamond trading centres such as Antwerp, Tel Aviv and Dubai for rough diamonds. Most of the diamonds produced in the world are shipped to India for cutting and grinding and then go into the global retail market. In this way, India dominates the diamond processing industry.

China’s diamond processing industry and African mines

By securing deals with companies and governments that control diamond mines in Africa, China is breaking India’s monopoly on diamond processing through the Belt and Road Initiative. This had caused China’s diamond exports to increase by 72% by 2014, generating revenue of US$8.9 billion. Countries and regions that signed the Belt and Road Initiative in central and southern Africa, such as South Africa, Gambia, Zaire, Botswana, Zimbabwe and their surrounding areas are the most famous rough diamond sources and producing sites of the world. In recent years, Chinese company Anjin Investments, a joint venture between Anhui Foreign Economic Construction Co. Ltd., and Matt Bronze Enterprises of the Zimbabwe Defense Ministry and the Zimbabwe Defense Forces, has been negotiating with the Zimbabwe government on mining resources. President Emmerson Mnangagwa of Zimbabwe has recently allocated fresh diamond mining claims to Anjin Investments in Chiadzwa in Manicaland province, four years after the company was evicted from the mineral-rich area alongside other miners on allegations of under-declaring proceed in 2016. Meanwhile, Russian company Alrosa also signed a number of agreements with Zimbabwe Consolidated Diamond Company (ZCDC) to establish a joint venture for Zimbabwe’s primary diamond deposits. It will be interesting to see whether China and Russia will cooperate in Zimbabwe for diamond mining in the future.

To summarize, combining Chinese craftsmanship and rough diamonds of high quality is bound to be a massive opportunity for the global market in the future. Besides, it is also crucial for China to strengthen workers’ vocational skills to improve the diamond processing industry’s overall efficiency and production level. As China begins to further invest in the BRI project, Chinese companies may find more opportunities in Africa in the future.

China’s synthetic diamond industry

According to the F&S report, the global market for rough diamonds will lead to a shortage of 248 million carats by 2050. Customers from China and India have significantly contributed to this number. By advancing its technology in producing synthetic diamonds, China finds another way to develop its diamond industry.

In recent years, China’s synthetic diamond industry has been expanding along with the increasing global demand for China’s synthetic diamonds. According to a report by Leadleo on China’s synthetic diamond industry, there were 8,278 diamond equipment, materials, micro-powder, composite sheet, diamond tools and diamond products companies in China’s diamond industry as of the end of 2018. The top five leading enterprises in the industry occupy about 80% of the market share and have high market concentration. In terms of the industry’s geographical distribution, large leading synthetic diamond enterprises are mainly located in the Henan Province due to the local government’s policy preferences. By contrast, small diamond manufacturing enterprises concentrate in the Anhui Province. On a technical level, the low-end sectors of China’s synthetic diamond industry have developed their international market competency by improving their products’ quality to reach international standards. By contrast, Chinese enterprises that manufacture high-end diamonds with special functions still have a long way to go. There is a significant gap between them and leading global manufacturers such as the UK’s Element Six, one of the world’s best manufacturers for high-end synthetic diamonds. Therefore, many artificial diamond companies in China are currently working on enhancing their technology, striving for breakthroughs to meet global customers’ various demands, and obtaining more significant profit margins.

To conclude, China’s diamond industry is emerging. With the development of the synthetic diamond industry and more access to African mines, China is hoping to make more breakthroughs in the diamond industry in the near future.

From our partner RIAC

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