When experts and media publications discuss the issue of sanctions, they often say that they are against a particular country. We often hear about sanctions against Russia, Iran, China, or retaliatory measures against the US, EU and other countries. At the same time, given the specifics of modern sanctions, there is an increasingly widespread use of so-called “pin-point”, “targeted” or “smart” sanctions. If in the twentieth century, sanctions often meant trade bans against certain countries, then in the twenty-first century they are widely used against individuals and organisations: starting from drug dealers and terrorists, and ending with officials, businessmen, ministries, departments, companies or sectors of the economy, associated with certain “political regimes”.
This situation raised the question of what the purpose of modern sanctions is exactly, and whether it is correct to talk about sanctions against certain states. For example, should sanctions against individual Russian citizens be considered anti-Russian? The same goes for any other country. A decisive answer to this question remains elusive. The source of scepticism, on the one hand, emanates from legal experts, and on the other, some states initiating the sanctions, for which the separation of persons under sanctions from the state to which they belong is an element of political doctrine and a way of legitimising political decisions.
Legal experts reasonably point out that, from a formal point of view, modern sanctions are increasingly restricting the rights of certain individuals and legal entities, and not the state as a whole. Moreover, the citizens of the initiating countries also see their rights curtailed. After all, they are instructed, for example, not to enter into economic transactions with persons involved in the sanctions lists. In the case of extraterritorial sanctions, such restrictions also apply to foreigners. So, it is technically correct to talk about sanctions against citizen X, department Y or company Z, and not about sanctions against the country in which they may reside.
The largest initiator of “targeted” sanctions is the United States. In the American political discourse, the trend was also established in order to separate persons under sanctions from their states. This is largely due to the specifics of the American foreign policy ideology; it’s based on the idea of promoting democracy throughout the world. Americans assume that one of the reasons for the hostile behaviour of states towards the United States and other countries, as well as domestic violations of human rights, is the autocratic nature of the political system. US policymakers contend that the state’s political regime, and not the state as a whole, is to blame for the viciousness of the state’s behaviour. In this way, Americans separate the government from society. In the foreign policy statements of officials, you can often find passages that the United States opposes the Chinese Communist Party, but supports the creative Chinese people. That they hope to bleed the Iranian theocratic regime, but desire the liberation of Iranian society. That they oppose the “authoritarian Putin regime”, but strive for friendship with the Russian people, and so on. In the context of such a doctrine, sanctions are a political technique aimed at both the foreign policy and internal political processes of the targeted country. The separation of the regime, individuals and organisations from the state itself is an important source of legitimisation of sanctions (in the sense in which Max Weber understood it, that is, in terms of politics, not law). One way or another, a similar approach is manifested in the practice of sanctions by the European Union and other initiators.
Naturally, this approach is not very encouraging for those who advocate the idea of sovereign equality of states. In terms of equality of sovereignty, the sanctions of the 20th century are quite acceptable; they were often a mechanism to contain and undermine military and economic potential. That is, they were part of the competition and rivalry of national states that recognised each other as equal players. The situation turns out quite different when one of the rivals questions the very legitimacy of the state structure of the other side or applies restrictive measures bypassing its sovereign rights. In such a situation, consolidated democracies with a high level of statehood and significant power potential gain noticeable advantages. It is difficult to shatter them by opposing the regime and society. Autocracies and unconsolidated democracies with weak and corrupt state institutions are in a much more difficult situation if they seek to resist such interference. Consolidated autocracies with a high level of statehood feel relatively protected. But they are also vulnerable in their own way, since even a stable “vertical system” can fail.
To an even greater extent, the advantages of consolidated democracies are multiplied by the global nature of the modern world economy, and the importance of markets and financial systems of such states, which are the most active initiators of sanctions. This is manifested in the fact that the citizens and organisations of the sanctions-targeted countries, which at the same time carry out this or that international economic activity, are forced to at least take into account, and, as maximum, to comply with the sanctions regimes of the country that is the enemy. Situations when, for example, Russian or Chinese exporting companies comply with US sanctions can be encountered quite often today.
In such a situation, it is important to understand that in addition to formal legal aspects, there are also political ones. Modern international relations are still relations between nation-states. They pursue their political goals and interests, and vie with each other for power and influence. Therefore, formally, “pin-point” sanctions should be considered in the context of the agenda of relations between specific states. Outside of such a context, we have the risk of falling into one of two pitfalls. First, we risk studying sanctions in purely laboratorial way, without “impurities”, as an ideal type. It is clear that such research is of little use when addressing real-life situations. Second, sanctions could be misconstrued to be thought of exclusively in the context of the political narrative of a particular country or group of countries (for example, the US and the EU). There is nothing wrong with understanding such a narrative. However, it should not be taken as a “self-sufficient value”.
It seems that “pin-point” or “smart sanctions” can be considered as directed against the state, for at least two reasons.
First, the damage from sanctions imposed on sectors of the economy, organisations, enterprises and even individual citizens usually isn’t limited exclusively to them, but has a wider effect. US sanctions against Iran’s oil or financial sectors can nominally be considered “smart” and “pin-point”. However, the damage from them affects wide strata of the population. For example, sanctions against banks has make it difficult for Iran to obtain medical equipment supplies, which in turn affects the quality of life. Blacklisting the owner or top manager of a large enterprise affects all its activities, and also affects suppliers and consumers. For example, US sanctions against Oleg Deripaska have threatened serious disruptions in the work of Rusal, an important enterprise for the Russian economy.
The same applies to sanctions against a political administration. It is difficult to separate it from the state. Yes, disgusting dictatorships and arrogant autocracies often crop up in the world. The question of their right to exist is not only a legal or political, but also an ethical problem. The question is: who exactly passes judgment on such a regime, and who exactly has the right to contain or change it, including via sanctions? A number of states reserve this right, using unilateral measures and bypassing the UN Security Council. Smart sanctions against individuals nominally target the regime. But in reality, they lead to shifts in domestic or foreign policy, that is, they change the structure and behaviour of the state as a whole.
Second, the state cannot abstract itself from hostile measures against its citizens or organisations that are in its jurisdiction. For example, Article 2 of the Constitution of Russia states that “The recognition, observance and protection of human and civil rights and freedoms shall be an obligation of the State.” The use of “pin-point” restrictive measures by a foreign state is an obvious violation of such rights. To some extent, such a norm is universal for a modern nation state. The question is, how exactly will the state react to restrictive measures? It can agree to the demands of the initiators or force its citizens to comply with these requirements (such cases are not uncommon). But it may well leave its course unchanged, introduce retaliatory restrictive measures or respond in any other way, including breaking ties with the state that initiated the sanctions.
Without a doubt, in the practice of applying sanctions, there are more cases where the nationality of the individuals fades into the background. This applies, for example, to sanctions against terrorists and drug dealers. Both problems are universal. However, universality does not exempt us from problems with the state. Human rights can be viewed universally. But for many states, this is already a sensitive political issue. Despite the fact that modern sanctions are increasingly targeted at individuals, organisations or structures, their ultimate goal is often altering the political course of a particular country. As long as the nation-state remains a key player in the international arena, even targeted sanctions will affect state interests. This means that it is too early to write off the concept of anti-Russian, anti-Chinese and any other anti-state sanctions.
From our partner RIAC
2022: Small Medium Business & Economic Development Errors
Calling Michelangelo: would Michelangelo erect a skyscraper or can an architect liberate David from a rock of marble? When visibly damaged are the global economies, already drowning their citizenry, how can their economic development departments in hands of those who never ever created a single SME or ran a business, expect anything else from them other than lingering economic agonies?
The day pandemic ends; immediately, on the next day, the panic on the center stage would be the struggling economies across the world. On the small medium business economic fronts, despite, already accepted globally, as the largest tax contributor to any nation. Visible worldwide, already abandoned and ignored without any specific solutions, there is something strategically wrong with upskilling exporters and reskilling manufacturers or the building growth of small medium business economies. The SME sectors in most nations are in serious trouble but are their economic development rightly balanced?
Matching Mindsets: Across the world, hard working citizens across the world pursue their goals and some end up with a job seeker mindset and some job creator mindset; both are good. Here is a globally proven fact; job seekers help build enterprises but job creators are the ones who create that enterprise in the first place. Study in your neighborhoods anywhere across the world and discover the difference.
Visible on LinkedIn: Today, on the SME economic development fronts of the world, clearly visible on their LinkedIn profiles, the related Ministries, mandated government departments, trade-groups, chambers, trade associations and export promotion agencies are primarily led by job seeker mindsets and academic or bureaucratic mentality. Check all this on LinkedIn profiles of economic development teams anywhere across the world.
Will jumbo-pilots do heart transplant, after all, economic performance depends on matching right competency; Needed today, post pandemic economic recovery demands skilled warriors with mastery of national mobilization to decipher SME creation and scalability of diversified SME verticals on digital platforms of upskilling for global age exportability. This fact has hindered any serious progress on such fronts during the last decade. The absence of any significant progress on digitization, national mobilization of entrepreneurialism and upskilling of exportability are clear proofs of a tragically one-sided mindset.
Is it a cruise holiday, or what? Today, the estimated numbers of all frontline economic development team members across 200 nations are roughly enough to fill the world-largest-cruise-ship Symphony that holds 6200 guests. If 99.9% of them are job-seeker mindsets, how can the global economic development fraternity sleep tonight? As many billion people already rely on their performances, some two billion in a critical economic crisis, plus one billion starving and fighting deep poverty. If this is what is holding grassroots prosperity for the last decade, when will be the best time to push the red panic button?
The Big Fallacy of “Access to Finance” Notion: The goals of banking and every major institution on over-fanaticized notions of intricate banking, taxation are of little or no value as SME of the world are not primarily looking for “Access to Capital” they are rather seeking answers and dialogue with entrepreneurial job creator mindsets. SME management and economic development is not about fancy PDF studies of recycled data and extra rubber stamps to convince that lip service is working. No, it is not working right across the world.
SME are also not looking for government loans. They do not require expensive programs offered on Tax relief, as they make no profit, they do not require free financial audits, as they already know what their financial problems are and they also do that require mechanical surveys created by bureaucracies asking the wrong questions. This is the state of SME recovery and economic development outputs and lingering of sufferings.
SME development teams across the world now require mandatory direct SME ownership experiences
The New Hypothesis 2022: The new hypothesis challenges any program on the small medium business development fronts unless in the right hands and right mindsets they are only damaging the national economy. Upon satisfactory research and study, create right equilibrium and bring job seeker and job creator mindsets to collaborate for desired results. As a start 50-50, balances are good targets, however, anything less than 10% active participation of the job creator mindset at any frontline mandated SME Ministry, department, agency or trade groups automatically raises red flags and is deemed ineffective and irrelevant.
The accidental economists: The hypothesis, further challenges, around the world, economic institutes of sorts, already, focused on past, present and future of local and global economy. Although brilliant in their own rights and great job seekers, they too lack the entrepreneurial job creator mindsets and have no experience of creating enterprises at large. Brilliantly tabulating data creating colorful illustrative charts, but seriously void of specific solutions, justifiably as their profession rejects speculations, however, such bodies never ready to bring such disruptive issues in fear of creating conflicts amongst their own job seeker fraternities. The March of Displaced cometh, the cries of the replaced by automation get louder, the anger of talented misplaced by wrong mindsets becomes visible. Act accordingly
The trail of silence: Academia will neither, as they know well their own myopic job seeker mindset. In a world where facial recognition used to select desired groups, pronouns to right gatherings, social media to isolate voting, but on economic survival fronts where, either print currency or buy riot gears or both, a new norm; unforgiveable is the treatment of small medium business economies and mishmash support of growth. Last century, laborious and procedural skills were precious, this century surrounded by extreme automation; mindsets are now very precious.
Global-age of national mobilization: Start with a constructive open-minded collaborative narrative, demonstrate open courage to allow entrepreneurial points of views heard and critically analyze ideas on mobilization of small mid size business economies. Applying the same new hypotheses across all high potential contributors to SME growth, like national trade groups, associations and chambers as their frontline economic developers must also balance with the job creator mindset otherwise they too become irrelevant. Such ideas are not just criticism rather survival strategies. Across the world, this is a new revolution to arm SME with the right skills to become masters of trade and exports, something abandoned by their economic policies. To further discuss or debate at Cabinet Level explore how Expothon is making footprints on new SME thinking and tabling new deployment strategies. Expothon is also planning a global series of virtual events to uplift SME economies in dozens of selected nations.
Two wheels of the same cart: Silence on such matters is not a good sign. Address candidly; allow both mindsets to debate on how and why as the future becomes workless and how and why small medium business sectors can become the driving engine of new economic progress. Job seekers and job creators are two wheels of the same cart; right assembly will take us far on this economic growth passage. Face the new global age with new confidence. Let the nation witness leadership on mobilization of entrepreneurialism and see a tide of SME growth rise. The rest is easy.
Rebalancing Act: China’s 2022 Outlook
Authors: Ibrahim Chowdhury, Ekaterine T. Vashakmadze and Li Yusha
After a strong rebound last year, the world economy is entering a challenging 2022. The advanced economies have recovered rapidly thanks to big stimulus packages and rapid progress with vaccination, but many developing countries continue to struggle.
The spread of new variants amid large inequalities in vaccination rates, elevated food and commodity prices, volatile asset markets, the prospect of policy tightening in the United States and other advanced economies, and continued geopolitical tensions provide a challenging backdrop for developing countries, as the World Bank’s Global Economic Prospects report published today highlights.
The global context will also weigh on China’s outlook in 2022, by dampening export performance, a key growth driver last year. Following a strong 8 percent cyclical rebound in 2021, the World Bank expects growth in China to slow to 5.1 percent in 2022, closer to its potential — the sustainable growth rate of output at full capacity.
Indeed, growth in the second half of 2021 was below this level, and so our forecast assumes a modest amount of policy loosening. Although we expect momentum to pick up, our outlook is subject to domestic in addition to global downside risks. Renewed domestic COVID-19 outbreaks, including the new Omicron variant and other highly transmittable variants, could require more broad-based and longer-lasting restrictions, leading to larger disruptions in economic activity. A severe and prolonged downturn in the real estate sector could have significant economy-wide reverberations.
In the face of these headwinds, China’s policymakers should nonetheless keep a steady hand. Our latest China Economic Update argues that the old playbook of boosting domestic demand through investment-led stimulus will merely exacerbate risks in the real estate sector and reap increasingly lower returns as China’s stock of public infrastructure approaches its saturation point.
Instead, to achieve sustained growth, China needs to stick to the challenging path of rebalancing its economy along three dimensions: first, the shift from external demand to domestic demand and from investment and industry-led growth to greater reliance on consumption and services; second, a greater role for markets and the private sector in driving innovation and the allocation of capital and talent; and third, the transition from a high to a low-carbon economy.
None of these rebalancing acts are easy. However, as the China Economic Update points out, structural reforms could help reduce the trade-offs involved in transitioning to a new path of high-quality growth.
First, fiscal reforms could aim to create a more progressive tax system while boosting social safety nets and spending on health and education. This would help lower precautionary household savings and thereby support the rebalancing toward domestic consumption, while also reducing income inequality among households.
Second, following tightening anti-monopoly provisions aimed at digital platforms, and a range of restrictions imposed on online consumer services, the authorities could consider shifting their attention to remaining barriers to market competition more broadly to spur innovation and productivity growth.
A further opening-up of the protected services sector, for example, could improve access to high-quality services and support the rebalancing toward high-value service jobs (a special focus of the World Bank report). Eliminating remaining restrictions on labor mobility by abolishing the hukou, China’s system of household registration, for all urban areas would equally support the growth of vibrant service economies in China’s largest cities.
Third, the wider use of carbon pricing, for example, through an expansion of the scope and tightening of the emissions trading system rules, as well power sector reforms to encourage the penetration and nationwide trade and dispatch of renewables, would not only generate environmental benefits but also contribute to China’s economic transformation to a more sustainable and innovation-based growth model.
In addition, a more robust corporate and bank resolution framework would contribute to mitigating moral hazards, thereby reducing the trade-offs between monetary policy easing and financial risk management. Addressing distortions in the access to credit — reflected in persistent spreads between private and State borrowers — could support the shift to more innovation-driven, private sector-led growth.
Productivity growth in China during the past four decades of reform and opening-up has been private-sector led. The scope for future productivity gains through the diffusion of modern technologies and practices among smaller private companies remains large. Realizing these gains will require a level playing field with State-owned enterprises.
While the latter have played an instrumental role during the pandemic to stabilize employment, deliver key services and, in some cases, close local government budget gaps, their ability to drive the next phase of growth is questionable given lower profits and productivity growth rates in the past.
In 2022, the authorities will face a significantly more challenging policy environment. They will need to remain vigilant and ready to recalibrate financial and monetary policies to ensure the difficulties in the real estate sector don’t spill over into broader economic distress. Recent policy loosening suggests the policymakers are well aware of these risks.
However, in aiming to keep growth on a steady path close to potential, they will need to be similarly alert to the risk of accumulating ever greater levels of corporate and local government debt. The transition to high-quality growth will require economic rebalancing toward consumption, services, and green investments. If the past is any guide to the future, the reliance on markets and private sector initiative is China’s best bet to achieve the required structural change swiftly and at minimum cost.
First published on China Daily, via World Bank
The US Economic Uncertainty: Bitcoin Faces a Test of Resilience?
Is inflation harmful? Is inflation here to stay? And are people really at a loss? These and countless other questions along the same lines dominated the first half of 2021. Many looked for alternative investments in the national bourse, while others adopted unorthodox streams. Yes, I’m talking about bitcoin. The crypto giant hit records after records since the pandemic made us question the fundamentals of our conventional economic policies. And while inflation was never far behind in registering its own mark in history, the volatility in the crypto stream was hard to deny: swiping billions of dollars in mere days in April 2021. The surge came again, however. And it will keep on coming; I have no doubt. But whether it is the end of the pandemic or the early hues of a new shade, the tumultuous relationship between traditional economic metrics and the championed cryptocurrency is about to get more interesting.
The job market is at the most confusing crossroads in recent times. The hiring rate in the US has slowed down in the past two months, with employers adding only 199,000 jobs in December. The numbers reveal that this is the second month of depressing job additions compared to an average of more than 500,000 jobs added each month throughout 2021. More concerning is that economists had predicted an estimated 400,000 jobs additions last month. Nonetheless, according to the US Bureau of Labour Statistics, the unemployment rate has ticked down to 3.9% – the first time since the pre-pandemic level of 3.5% reported in February 2020. Analytically speaking, US employment has returned to pre-pandemic levels, yet businesses are still looking for more employees. The leverage, therefore, lies with the labor: reportedly (on average) every two employees have three positions available.
The ‘Great Resignation,’ a coinage for the new phenomenon, underscores this unique leverage of job selection. Sectors with low-wage positions like retail and hospitality face a labor shortage as people are better-positioned to bargain for higher wages. Thus, while wages are rising, quitting rates are record high simultaneously. According to recent job reports, an estimated 4.5 million workers quit their jobs in November alone. Given that this data got collected before the surge of the Omicron variant, the picture is about to worsen.
While wages are rising, employment is no longer in the dumps. People are quitting but not to invest stimulus cheques. Instead, they are resigning to negotiate better-paying jobs: forcing the businesses to hike prices and fueling inflation. Thus, despite high earnings, the budget for consumption [represented by the Consumer Price Index (CPI)] is rising at a rate of 6.8% (reported in November 2021). Naturally, bitcoin investment is not likely to bloom at levels rivaling the last two years. However, a downfall is imminent if inflation persists.
The US Federal Reserve sweats caution about searing gains in prices and soaring wage figures. And it appears that the fed is weighing its options to wind up its asset purchase program and hike interest rates. In March 2020, the fed started buying $40 billion worth of Mortgage-backed securities and $80 billion worth of government bonds (T-bills). However, a 19% increase in average house prices and a four-decade-high level of inflation is more than they bargained. Thus, the fed officials have been rooting for an expedited normalization of the monetary policy: further bolstered by the job reports indicating falling unemployment and rising wages. In recent months, the fed purview has dramatically shifted from its dovish sentiments: expecting no rate hike till 2023 to taper talks alongside three rate hikes in 2022.
Bitcoin now faces a volatile passage in the forthcoming months. While the disappointing job data and Omicron concerns could nudge the ball in its favor, the chances are that a depressive phase is yet to ensue. According to crypto-analysts, the bitcoin is technically oversold i.e. mostly devoid of impulsive investors and dominated by long-term holders. Since November, the bitcoin has dropped from the record high of $69,000 by almost 40%: moving in the $40,000-$41,000 range. Analysts believe that since bitcoin acts as a proxy for liquidity, any liquidity shortage could push the market into a mass sellout. Mr. Alex Krüger, the founder of Aike Capital, a New York-based asset management firm, stated: “Crypto assets are at the furthest end of the risk curve.” He further added: “[Therefore] since they had benefited from the Fed’s “extraordinarily lax monetary policy,” it should suffice to say that they would [also] suffer as an “unexpectedly tighter” policy shifts money into safer asset classes.” In simpler terms, a loose monetary policy and a deluge of stimulus payments cushioned the meteoric rise in bitcoin valuation as a hedge against inflation. That mechanism would also plummet the market with a sudden hawkish shift.
The situation is dire for most industries. Job participation levels are still low as workers are on the sidelines either because of the Omicron concern or lack of child support. In case of a rate hike, businesses would be forced to push against the wages to accommodate affordability in consumer prices. For bitcoin, the investment would stay dormant. However, any inflationary surprises could bring about an early tightening of the policy: spelling doom for the crypto market. The market now expects the job data to worsen while inflation to rise at 7.1% through December in the US inflation data (to be reported on Wednesday). Any higher than the forecasted figure alongside uncertainty imbued by the new variant could spark a downward spiral in bitcoin – probably pushing the asset below the $25000 mark.
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