Deep rifts are tearing through the body of our society. They cause new anxiety and anger among people and create new currents in politics. The social basis of this anxiety includes geographical, educational and ethical factors.
People are not born to earn a lot of money. Quite the reverse. They just want to live well or as well as they are used to, and earn what they need without wanting to exploit others.
Many thoughts and theories that had a great impact in the world have often been orphaned, and are adopted by other schools of thought. Therefore they cannot avoid criticism.
For example, Jeremy Bentham, the philosopher who laid the ethical foundations of modern capitalism, as well as other thinkers, are not moral giants in the modern sense of the word, but are known for their incompatibility with ethics. Utilitarianism pursues maximum utility and happiness and it is not by chance that it is adopted by the emerging Western economics and, under the constraints of creating an ‘economic man’, can easily be developed with new methods obtained from mathematical statistical calculation (derivative systems).
The maximum value thus satisfies the economy’s urgent need for sophisticated and accurate quantitative systemic tools. This set of amoral ethical thoughts that came out of the pursuit of ‘natural values’ that everyone, not just a few, should obtain, has gradually been forgotten by the critical history of economic thought.
Utilitarianism and liberalism are the two complementary and contradictory pillars in the foundation of market economy. The former separates the standard of moral judgement on personal behaviour from the passion for money accumulation, and changes it to be completely determined by the profit motive. Therefore, only such behaviour can enhance “the greatest happiness for the greatest number of people”, self-referencing itself as ethical and eliminating the instinctive value judgement of every human being who is unable to achieve such happiness due to money. According to this ‘sacred’ standard, the elite group of technocrats should objectively play the role of ‘social guardian’.
Liberalism recognises the goal of utilitarianism, but firmly opposes the inference that it leads to a strong central government. Adam Smith believed that the division of labour and exchange were spontaneous and for free and could promote the general happiness of society and the enhancement of personal wellbeing at the same time. The theorems of welfare economics infer that all the outcomes of spontaneous market equilibrium must result in welfare maximisation. Conversely, the maximisation of overall welfare in practice is achieved by the free will of the individual (the entrepreneur), i.e. by a selfish behaviour of the individual. According to the liberals, the government’s role in it is to make only a few changes to the ‘distribution of initial capital’. Hence no longer Hegel’s Ethical State, but the State as simple administrator, employed by the aforementioned elite. At this point, the ethical project of liberal capitalism is complete.
Free choice and welfare maximisation can theoretically be achieved at the same time. Therefore, what people have to do is to favour State restrictions and at the same time promote full competition, as well as reduce information and external asymmetries through homologation and standardisation. Hence the aim of capitalism is to remove the ethical role of the State.
Ironically, however, the ethical structure of liberal capitalism has never been perfect outside theoretical designs, i.e. it has manifested itself in a particular part of the world by going through devastating crises. The Great Depression ran over the ‘sacred invisible hand’ of the economy like an elephant tramples a clod of earth. World War II pushed the collective will and mobilisation of State capitalism to their limits, through the well-known political and economic examples.
Peoples have different forms of expression, the electoral and the revolutionary ones. Socialism in the aftermath of World War II and, even before, communitarianism became good medicine and correctives for the horrors of capitalism. In major European countries, social democratic parties have brought about major changes in liberal capitalism, the culmination of which are the Scandinavian models.
Paul Collier, Professor at the Oxford Universities and author of The Future of Capitalism: Facing the New Anxieties (2018) took his own hometown, Sheffield, as an example in his book. Sheffield was the first city in the North of England to experience the industrial revolution and was also the first to face the new anxiety caused by that revolution: the polarisation between the rich and the poor, unemployment and the environment.
Following the deterioration of the situation and demographic changes, the citizens’ response was to enhance ties among them and create a sufficiently strong community, as well as use this close relationship to create an organisation establishing charitable cooperatives.
For example, housing cooperatives allow people to save money to buy houses; insurance cooperatives reduce risk, and agricultural and retail cooperatives give farmers and consumers independent bargaining power over large corporations.
The cooperative movement that started and developed in the North of England quickly spread to most of Europe and became the economic basis of the centre-left social democratic parties. It was, however, the centre-left of that time, not today’s political farce with well-known bit-part actors and actresses.
Through the alliance, the community spread across the country and reciprocity within the community extended to mutual commitment between State and citizens. The pragmatic policies of medical insurance, pension, education, unemployment and welfare eased families’ anxiety. Over the years, social democracy has alternately taken power in capitalist countries, and these socialist measures have been long-term and universally maintained – at least so far.
With the decline of the steel industry, cities became typical obsolete and dilapidated centres. In various European countries, the decline of the social democratic parties – which initiated in the 1970s -started to step up at the beginning of the century and has reached its peak over the last ten years. Decline has occurred in France, Germany, Spain and Italy (where the glorious Socialist Party (PSI)has disappeared). Support rates in Norway and the Netherlands have fallen significantly.
It should be noted, however, that the traditional centre-right parties have not benefited from it and have even become a launching pad for movements hetero-directed by stateless financial capital and by vague and inconclusive agendas. Italy is a painful case in point.
Globalised capitalism is clearly responsible for all this – through technology and mass addiction – and raises once again the problem of the incompatibility of rights and duties in the liberal society, at the time when the gap between the rich and the poor is widening. Italy is the worst among the most populous European countries in terms of difference in income between the rich and the poor: in our country, 20% of the population with the highest incomes can count on more than six times the incomes of the 20% with the lowest ones.
The decline of the ethical State and the collapse of social democracy are the contradiction between the actual collapse of mutual obligations (rights-duties) in globalised capitalism and the increasing demand for the aforementioned obligations due to the more complex and asymmetrical economic structure (just consider violence in South America owing to the continuing failures of capitalism).
Fiscal crises with high welfare have also spread to Europe: it should be recalled that the double entendrePIIGS (Portugal, Italy, Ireland, Greece and Spain) was used in 2008-2010, as well as “Rust Belt” (the U.S. region between the Northern Appalachian Mountains and the Great Lakes) to refer to phenomena such as economic decline, depopulation and urban decay due to the contraction of the once very active industrial sector, after the 2008 financial crisis.
Therefore,in the countries where there has been an unprecedented expansion of higher education and wealth that has led to the creation of the middle class, the capitalism crises lead to the dilemma of identity and frustration.
If we do not confine ourselves to the hypothesis of a “rational economic man”, but rather focus on the more realistic “rational social man”, we will have more economic benefits, since the respect for identity is included in the satisfaction of individual needs.
A simple thinking model may suggest an idea. If everyone has two goods or assets, namely work and citizenship, both can lead to a certain respect. Respect for work is reflected in income and respect for citizenship in the country’s prestige. Although everyone cannot choose their identity, they can choose ‘prominence’: choosing a prominent identity indicates a common group to which we proactively belong. The more the common group is respected, the more individuals are encouraged not to prevaricate against each other in pursuit of their own happiness by doing harm to the others.
Conversely, the ethics of liberal capitalism traditionally aims at destroying the State and turning citizens into consumers without identity.
The Politico-Economic Crisis of Lebanon
Dubbed as a failed state. The Middle Eastern country, also known as the ‘Lebanese Republic’, is already leading towards a humanitarian crisis. The country is witnessing the worst financial crisis since the 1975-90 civil war. The financial catastrophe has done most of the damage as the country currently stands as one of the top 10 worst economic disasters witnessed over the past 150 years. If the economists are put true to their word, it means that Lebanon rates as the most dismal economic crash since the 19th century. As the state of Lebanon undergoes a significant political shift since last year, the social and economic fissures are subsequently broadening. A fragile democracy (for namesake) and a constant disequilibrium in the parliamentary stratosphere, have led to an economic depression that is rapidly expanding as the country fails to adopt a unified political stance and adhere to corrective measures to hold the toppling economy from a collapse.
More than half of the Lebanese population has slumped below the poverty line as escalating inflation continues to reel the populace. The main cause underpinning such brutal inflation is the hyper-devaluation of the Lebanese pound. The currency was originally pegged at a fixed rate of 1500 Lebanese pounds to the US dollar. However, over the past three decades, the economic crunch has crippled the economic nucleus of Lebanon. According to World Bank estimates, the Lebanese pound has devalued by 95% and currently trades at 22000 Lebanese pounds to the US dollar in the black market – roughly 15 times above the official rate. The resultant inflation has driven the government to push the prices to unfathomable levels – even pushing necessities beyond the reach of an average citizen. The fact could be witnessed by the rapid increase in the price of bread – which was hiked by another 5% last month to value at 4000 Lebanese pounds per loaf.
The dire social crisis could be gauged by the fact that an average Lebanese family requires a spending worth five times the minimum wage mandated by the government just to afford basic food requirements. Most of the families can’t suffice to consume utilities such as medicine, gas, or electricity. Astounding research revealed that even hospitals dealing with the Covid outbreak are not afforded gas and electricity which has led to a hike in petroleum consumption due to heavy usage of generators. The resulting shortage of petroleum has driven rage across the country as businesses fail to thrive while multiple wings of the airports are rendered powerless. The recent World Bank report signified that the food prices have inflated by roughly 700% over the past two years – a swell of 50% in just under a month. The regional countries have shown concern as Lebanon is heading towards a health crisis with a strengthening Delta variant in the Middle East and no room for recovery.
The main cause of such a debilitating situation is primarily the rampant corruption in the echelons of the government followed by the instability that ensued last year. Following the catastrophic blast in Beirut’s port that claimed an estimated 200 lives, the government resigned in the aftermath of virulent protests across Lebanon. The political vacuum, however, further pushed the state into despair. The caretaker government, led by the former Prime Minister, Saad Hariri, failed to consolidate a government as ideological differences between the President and the Prime Minister continued to displace the essential debates of the country. The contention between President Michel Aon, a stout supporter of the Shite militant group Hezbollah, and Prime Minister Saad al-Hariri, a Sunni Centrist, caused the efforts to falter as the country continued to plunge into crisis without an elected government to handle the office.
Hariri drove the narrative that due to President’s strong ties with the Hezbollah, which is arguably supported by Iran, Lebanon has suffered a shuffle of power to entrust financial support to the militant group. The narrative caused institutions like IMF and the World Bank to hesitate in injecting desperately needed social stimulus into the country despite continual warnings of an impending humanitarian crisis by France and the United States. A political vacuum coupled with the destruction caused last year along with the prudence of global financial institutions to pivot the country have ultimately resulted in the chaos that describes the landscape of Lebanon today.
However, Hariri resigned last month after failing to form a government even after nine months. The resulting political thaw helped President Aon to appoint Najib Mikati, a lucrative businessman, and former prime minister, as an interim Prime Minister entrusted to form a mandated government in Lebanon.
With a renewed Cabinet support, something that Hariri rarely enjoyed, Mikati is expected to assuage the concerns of the IMF and support economic reforms with the help of states like France. The Paris conference, scheduled on 4th August, is now the focal point as Mikati plans to convince the French diplomats regarding his schemes to pull Lebanon out of the puddle. Prime Minister Mikati recently reflected on his aspirations: “I come from the world of business and finance and I will have a say in all finance-related decisions”. He further stated: “I don’t have a magic wand and can’t perform miracles … but I have studied the situation for a while and have international guarantees”. It is clear that Mikati envisages repairing the economy which is already long overdue.
Under the French plan aiding Mikati’s regime, he would need to enforce significant political reforms to gain international aid. The diplomats, however, envision a far graver reality. It is touted that the IMF would likely focus on two facets before granting any leverage to the Mikati-regime: political-social reforms and progress towards parliamentary elections. However, with grueling Covid cases springing into action, the road to recovery would probably be highly tensile.
While Mikati doesn’t stem from any particular political bloc unlike his failed predecessors, he was elected primarily by the backing of Hezbollah. A question emerges: would Mikati be able to navigate through the interests of an organization subjected as a terrorist fraction by most of the Western world. An organization that arguably serves as the primary reason why Lebanon stands as one of the highly indebted countries in the world. An organization that could be the decisive factor of whether financial support flows to Lebanon or sanctions cripple the economy further similar to Iran. The question stands: would Mikati refuse the dictation of Hezbollah and what would be the consequences. The situation is highly complex and time is running out. If Mikati fails, much like his predecessors, then not only Lebanon but the proximate region would feel the tremors of a ‘Social Explosion’.
Bangladesh-Myanmar Economic Ties: Addressing the Next Generation Challenges
Bangladesh-Myanmar relations have developed through phases of cooperation and conflict. Conflict in this case is not meant in the sense of confrontation, but only in the sense of conflict of interests and resultant diplomatic face-offs. Myanmar is the only other neighbor that Bangladesh has on its border besides India. It is the potential gateway for an alternative land route opening towards China and South-East Asia other than the sea. Historically, these two countries have geographic and cultural linkages. These two bordering countries, located in separate geopolitical regions, have huge possibilities in developing their bilateral economic relations. At the initial phase of their statehood, both countries undertook numerous constructive initiatives to improve their relations. Nevertheless, different bilateral disputes and challenges troubled entire range of cooperation. Subsequent to these challenges, Bangladesh and Myanmar have started negotiation process on key dubious issues. The economic rationales over political tensions in Bangladesh-Myanmar relations prevail with new prospects and opportunities.
Bangladesh-Myanmar relations officially began from 13 January 1972, the date on which Myanmar, as the sixth state, recognized Bangladesh as a sovereign nation. They signed several agreements on trade and business such as general trade agreement in 1973. The two countries later initiated formal trade relations on 05 September 1995. To increase demand for Bangladeshi products in Myanmar, Bangladesh opened trade exhibitions from 1995 to 1996 in Yangon, former capital of Myanmar. However, that pleasant bilateral economic relations did not last for long, rather was soon interrupted mainly by Myanmar’s long term authoritarian rule and isolationist economic policy. In the twenty-first century, Bangladesh-Myanmar relations are expected to move towards greater economic cooperation facilitated by two significant factors. First, the victory of Myanmar’s pro-democratic leader, Aung San Suu Kyi, in 2011 has considerably brought new dimensions in the relations. Although this relation is now at stake since the state power has been taken over by military. Second, the peaceful settlement of Bangladesh-Myanmar maritime dispute in 2012 added new dimension in their economic relations.
Bangladesh and Myanmar don’t share a substantial volume of trade and neither is in the list of largest trading partners. Bangladesh’s total export and import with Myanmar is trifling compared to the total export and import and so do Myanmar’s. But gradually the trades between the countries are increasing and the trend is for the last 5 to 6 year is upward especially for Bangladesh; although Bangladesh is facing a negative trend in Balance of Payment. In 2018-2019 fiscal year, Bangladesh’s total export to Myanmar was $25.11 million which is more than double from that of the export in 2011-12. Bangladesh imported $90.91 million worth goods and services from Myanmar resulting in $65 Million deficit in Balance of Payment in 2018-2019 fiscal year. For the last six or seven years, Bangladesh’s Balance of Payment was continuously in deficit in case of trade with Myanmar. The outbreak of COVID-19, closure of border for eight months and recent coup in Myanmar have a negative impact on the trade between the countries.
Bangladesh mainly imports livestock, vegetable products including onion, prepared foodstuffs, beverages, tobacco, plastics, raw hides and skin, leather, wood and articles of woods, footwear, textiles and artificial human hair from Myanmar. Recently, due to India’s ban on cattle export, Myanmar has emerged as a new exporter of live animals to Bangladesh especially during the Eid ul-Adha with a cheaper rate than India. On the hand, Bangladesh exports frozen foods, chemicals, leather, agro-products, jute products, knitwear, fish, timber and woven garments to Myanmar.
Unresolved Rohingya crisis, Myanmar’s highly unpredictable political landscape, lack of bilateral connectivity, shadow economy created from illegal activities, distrust created due to different insurgent groups, maritime boundary dispute, illegal drugs and arms smuggling in border areas, skeptic mindset of the people in both fronts and alleged cross border movement of insurgents are acting as stumbling block in bolstering economic relations between Bangladesh and Myanmar.
Bangladesh-Myanmar relations are yet to blossom in full swing. The agreement signed by Sheikh Hasina in 2011 to establish a Joint Commission for Bilateral Cooperation is definitely a proactive step for enhancing trade. People to people contact can be increased for building mutual confidence and trust. Frequent visit by business, civil society, military and civil administration delegates may be organized for better understanding and communication. Both countries may explore economic potential and address common interest for enhancing economic co-operation. In order to augment trade, both countries may ease visa restrictions, deregulate currency restrictions and establish smooth channel of financial transactions. Coastal shipping (especially cargo vessels between Chittagong and Sittwe), air and road connectivity may be developed to inflate trade and tourism. Bangladesh and Myanmar may establish “Point of Contact” to facilitate first-hand information exchange for greater openness. Initiative may be taken to sign Preferential Trade Agreement (PTA) within the ambit of which potential export items from both countries would be allowed to enter duty free. In recent year, Bangladesh was badly affected by many unilateral decisions of India such as onion crisis. Myanmar can serve as an alternative import source of crops and animals for Bangladesh to lessen dependence upon India.
Myanmar’s currency is highly devaluated for a long time due to its political turmoil and sanctions by the west. Myanmar can strengthen its currency value by escalating trade volume with Bangladesh. These two countries can fortify their local economy in boarder areas by establishing border haats. Cooperation between these two countries on “Blue Economy” may be source of strategic advantages mainly by exporting marine goods and service. Last but not the least, the peaceful settlement of maritime boundary disputes between Bangladesh and Myanmar in 2012 may be capitalized to add new dimension in their bilateral economic relations. Both nations can expand trade and investment by utilizing the Memorandum of Understanding on the establishment of a Joint Business Council (JBC) between the Republic of the Union of Myanmar Federation of Chambers of Commerce and Industry (UMFCCI) and the Federation of Bangladesh Chambers of Commerce and Industry (FBCCI).
With the start of a new phase in Bangladesh-Myanmar relations, which has put the bilateral relations on an upswing, it is only natural that both sides should try to give a boost to bilateral trade. Bilateral trade is not challenge free but the issue is far easier to resolve than others. At the same time, closer economic ties could also help in resolving other bilateral disputes. For Myanmar, as it is facing currency devaluation and losing market, increased trade volume will make their economy vibrant. For Bangladesh, it is a good opportunity to use the momentum to minimize trade deficits and reduce dependency on any specific country.
The Monetary Policy of Pakistan: SBP Maintains the Policy Rate
The State Bank of Pakistan (SBP) announced its bi-monthly monetary policy yesterday, 27th July 2021. Pakistan’s Central bank retained the benchmark interest rate at 7% after reviewing the national economy in midst of a fourth wave of the coronavirus surging throughout the country. The policy rate is a huge factor that relents the growth and inflationary pressures in an economy. The rate was majorly retained due to the growing consumer and business confidence as the global economy rebounds from the coronavirus. The State Bank had slashed the interest rate by 625 basis points to 7% back in the March-June 2020 in the wake of the covid pandemic wreaking havoc on the struggling industries of Pakistan. In a poll conducted earlier, about 89% of the participants expected this outcome of the session. It was a leap of confidence from the last poll conducted in May when 73% of the participants expected the State Bank to hold the discount rate at this level.
The State Bank Governor, Dr. Raza Baqir, emphasized that the Monetary Policy Committee (MPC) has resorted to holding the 7% discount rate to allow the economy to recover properly. He added that the central bank would not hike the interest rate until the demand shows noticeable growth and becomes sustainable. He echoed the sage economists by reminding them that the State Bank wants to relay a breather to Pakistan’s economy before pushing the brakes. The MPC further asserted that the Real Discount Rate (adjusted for inflation) currently stands at -3% which has significantly cushioned the economy and encouraged smaller industries to grow despite the throes of the pandemic.
Dr. Raza Baqir further went on to discuss the current account deficit staged last month. He added that the 11-month streak of the current account surplus was cut short largely due to the loan payments made in June. The MPC further explained that multiple factors including an impending expiration of the federal budget, concurrent payments due to lenders, and import of vaccines, weighed heavily down on the national exchequer. He further iterated that the State Bank expects a rise in exports along with a sustained recovery in the remittance flow till the end of 2021 to once again upend the current account into surplus. Dr. Raza Baqir assured that the current level of the current account deficit (standing at 3% of the GDP) is stable. The MPC reminded that majority of the developing countries stand with a current account deficit due to growth prospects and import dependency. The claims were backed as Dr. Raza Baqir voiced his optimism regarding the GDP growth extending from 3.9% to 5% by the end of FY21-22.
Regarding currency depreciation, Dr. Baqir added that the downfall is largely associated with the strengthening greenback in the global market coupled with high volatility in the oil market which disgruntled almost every oil-importing country, including Pakistan. He further remarked, however, that as the global economy is vying stability, the situation would brighten up in the forthcoming months. Mr. Baqir emphasized that the current account deficit stands at the lowest level in the last decade while the remittances have grown by 25% relative to yesteryear. Combined with proceeds from the recently floated Eurobonds and financial assistance from international lenders including the IMF and the World Bank, both the currency and the deficit would eventually recover as the global market corrects in the following months.
Lastly, the Governor State Bank addressed the rampant inflation in the economy. He stated that despite a hyperinflation scenario that clocked 8.9% inflation last month, the discount rates are deliberately kept below. Mr. Baqir added that the inflation rate was largely within the limits of 7-9% inflation gauged by the State Bank earlier this year. However, he further added that the State Bank is making efforts to curb the unrelenting inflation. He remarked that as the peak summer demand is closing with July, the one-way pressure on the rupee would subsequently plummet and would allow relief in prices.
The MPC has retained the discount rate at 7% for the fifth consecutive time. The policy shows that despite a rebound in growth and prosperity, the threat of the delta variant still looms. Karachi, Pakistan’s busiest metropolis and commercial hub, has recently witnessed a considerable surge in infections. The positivity ratio clocked 26% in Karachi as the national figure inched towards 7% positivity. The worrisome situation warrants the decision of the State Bank of Pakistan. Dr. Raza Baqir concluded the session by assuring that despite raging inflation, the State Bank would not resort to a rate hike until the economy fully returns to the pre-pandemic levels of employment and production. He further assuaged the concerns by signifying the future hike in the policy rate would be gradual in nature, contrast to the 2019 hike that shuffled the markets beyond expectation.
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