New Geopolitics Worse for Global South

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Dec 17 2024 (IPS) - The new geopolitics after the first Cold War undermines peace, sustainability, and human development. Hegemonic priorities continue to threaten humanity’s well-being and prospects for progress.

End of first Cold War

The end of the first Cold War has been interpreted in various ways, most commonly as a US triumph. Francis Fukuyama famously proclaimed the ‘end of history’ with the victory of capitalism and liberal democracy.

With the collapse of the Soviet Union and allied regimes, the US seemed unchallenged and unchallengeable in the new ‘unipolar’ world. The influential US journal Foreign Affairs termed ensuing US foreign policy ‘sovereigntist’.

But the new order also triggered fresh discontent. Caricaturing cultural differences, Samuel Huntington blamed a ‘clash of civilisations’. His contrived cultural categories serve a new ‘divide-and-rule’ strategy.

Today’s geopolitics often associates geographic and cultural differences with supposed ideological, systemic and other political divides. Such purported fault lines have also fed ‘identity politics’.

The new Cold War is hot and bloody in parts of the world, sometimes spreading quickly. As bellicosity is increasingly normalised, hostilities have grown dangerously.

Economic liberalisation, including globalisation, has been unevenly reversed since the turn of the century. Meanwhile, financialization has undermined the real economy, especially industry.

The G20 finance ministers, representing the world’s twenty largest economies, including several from the Global South, began meeting after the 1997 Asian financial crisis.

The G20 began meeting at the heads of government level following the 2008 global financial crisis, which was seen as a G7 failure. However, the G20’s relevance has declined again as the North reasserted G7 centrality with the new Cold War.

NATO rules

The ostensible raison d’être of the North Atlantic Treaty Organization (NATO) has gone with the end of the first Cold War and the Soviet Union.

The faces of Western powers have also changed. For example, the G5 grew to become the G7 in 1976. US infatuation with the post-Soviet Russia of Boris Yeltsin and Vladimir Putin even brought it into the G8 for some years!

Following the illegal US invasion of Iraq in 2003, the sovereigntist Wolfowitz doctrine of 2007 redefined its foreign policy priorities to strengthen NATO and start a new Cold War. NATO mobilisation of Europe – behind the US against

Russia – now supports Israel targeting China, Iran and others.

Violating the UN Charter, the 2022 Russian invasion of eastern Ukraine united and strengthened NATO and Europe behind the US. Despite earlier tensions across the north Atlantic, Europe rallied behind Biden against Russia despite its high costs.

International law has also not stopped NATO expansion east to the Russian border. The US unilaterally defines new international norms, often ignoring others, even allies. But Trump’s re-election has raised ‘centrist’ European apprehensions.

Developing countries were often forced to take sides in the first Cold War, ostensibly waged on political and ideological grounds. With mixed economies now ubiquitous, the new Cold War is certainly not over capitalism.

Instead, rivalrous capitalist variants shape the new geoeconomics as state variations underlie geopolitics. Authoritarianism, communist parties and other liberal dirty words are often invoked for effect.

New Europe

Despite her controversial track record during her first term as the European Commission (EC) president, Ursula von der Leyen is now more powerful and belligerent in her second term.

She quickly replaced Joseph Borrell, her previous EC Vice President and High Representative in charge of international relations. Borrell described Europe as a garden that the Global South, the surrounding jungle, wants to invade.

For Borrell, Europe cannot wait for the jungle to invade. Instead, it must pre-emptively attack the jungle to contain the threat. Since the first Cold War, NATO has made more, mainly illegal military interventions, increasingly outside Europe!

The US, UK, German, French and Australian navies are now in the South China Sea despite the 1973 ASEAN (Association of South-East Asian Nations) commitment to a ZOPFAN (zone of peace, freedom and neutrality) and no request from any government in the region.

Cold War nostalgia

The first Cold War also saw bloody wars involving alleged ‘proxies’ in southwestern Africa, Central America, and elsewhere. Yet, despite often severe Cold War hostilities, there were also rare instances of cooperation.

In 1979, the Soviet Union challenged the US to eradicate smallpox within a decade. US President Jimmy Carter accepted the challenge. In less than ten years, smallpox was eradicated worldwide, underscoring the benefits of cooperation.

Official development assistance (ODA) currently amounts to around 0.3% of rich countries’ national incomes. This is less than half the 0.7% promised by wealthy nations at the UN in 1970.

The end of the first Cold War led to ODA cuts. Levels now are below those after Thatcher and Reagan were in power in the 1980s. Trump’s views and famed ‘transactional approach’ to international relations are expected to cut aid further.

The economic case against the second Cold War is clear. Instead of devoting more to sustainable development, scarce resources go to military spending and related ‘strategic’ priorities.

Available online here: https://www.ipsnews.net/2024/12/new-geopolitics-worse-global-south/

2021: Year of living dangerously?

Jomo Kwame Sundaram

KUALA LUMPUR: Goodbye 2020, but unfortunately, not good riddance, as we all have to live with its legacy. It has been a disastrous year for much of the world for various reasons, Elizabeth II’s annus horribilis. The crisis has exposed previously unacknowledged realities, including frailties and vulnerabilities.

For many countries, the tragedy is all the greater as some leaders had set national aspirations for 2020, suggested by the number’s association with perfect vision. But their failures are no reason to reject national projects. As Helen Keller, the deaf and blind author activist, noted a century ago, “The only thing worse than being blind is having sight, but no vision.”

After JFK’s assassination in November 1963 ended US opposition to Western intervention in Indonesia, President Sukarno warned his nation in August 1964 that it would be ‘living dangerously’,vivere pericoloso, in the year ahead. A year later, a bloody Western-backed military coup had deposed him, taking up to a million lives, with many more ruined.

Further economic slowdown

Lacklustre economic growth after the 2009 Great Recession has been worsened in recent years by growing international tensions largely associated with US-China relations, Brexit and slowing US and world growth although stock markets continued to bubble.

Economic growth has slowed unevenly, with Asia slowing less than Europe, Latin America and even the US. With effective early pre-emptive measures, much of East Asia began to recover before mid-2020. Meanwhile, most other economies slowed, although some picked up later, thanks to successful initial contagion containment as well as adequate relief and recovery measures.

International trade has been picking up rapidly, accelerating rebounds in heavily trading economies. Commodity prices, except for fossil fuels, have largely recovered, perhaps due to major financial investments by investment banks and hedge funds, buoying stock and commodity prices since late March.

Very low US, EU and Japanese interest rates have thus sustained asset market bubbles. Meanwhile, new arbitrage opportunities, largely involving emerging market economies, have strengthened developing countries’ foreign reserves and exchange rates, thus mitigating external debt burdens.

Unbiased virus, biased responses

The pandemic worsened poverty, hunger and vulnerability by squeezing jobs, livelihoods and earnings of hundreds of millions of families. As economic activities resumed, production, distribution and supply barriers, constrained fiscal means, reduced demand, debt, unemployment, as well as reduced and uncertain incomes and spending have become more pronounced.

While many governments initially provided some relief, these have generally been more modest and temporary in developing countries. Past budget deficits, debt, tax incentives and the need for good credit ratings have all been invoked to justify spending cuts and fiscal consolidation.

Meanwhile, pandemic relief funds have been abused by corporations, typically at the expense of less influential victims with more modest, vulnerable and precarious livelihoods. Many of the super-rich got even richer, with the US’s 651 billionaires making over US$1 trillion.

On the pretext of saving or making jobs, existing social, including job protection has been eroded. But despite hopes raised by vaccine development, the crisis is still far from over.

Don’t cry for me, says Argentina

Meanwhile, intellectual property blocks more affordable production for all. Pharmaceutical companies insist that without the exhorbitant monopoly profits from intellectual property, needed tests, treatments and vaccines would never be developed. Meanwhile, a proposed patent waiver for Covid-19 vaccines has been blocked by the US and its rich allies at the World Trade Organization (WTO).

Hence, mass vaccination is likely to be very uneven and limited by intellectual property, national strategic considerations (‘vaccine nationalism’), prohibitive costs, fiscal and other constraints. Already, the rich have booked up almost all early vaccine supplies.

The main challenge then is fiscal. Economic slowdowns have reduced tax revenues, requiring more domestic debt to increase spending needed to ensure the recessions do not become protracted depressions. Meanwhile, rising debt-to-GDP ratios and increased foreign debt have long constrained bolder fiscal efforts.

But despite the urgent need for more fiscal resources, we are told that if the richest are required to pay more taxes, even on windfall profits, they will have no incentive to ‘save’ the rest of us. Nevertheless, new wealth taxes have just passed in Argentina.

This time is different

As the pandemic economic impacts began to loom large, International Monetary Fund Managing Director Kristalina Georgieva quickly offered debt relief for low-income countries on terms much better than the G20’s miserly proposal.

Unlike well-meaning debt-fixated researchers and campaigners, even new World Bank chief economist, erstwhile debt hawk Carmen Reinhart has urged, “First you worry about fighting the war, then you figure out how to pay for it”.

Nobel laureate Amartya Sen is concerned that “in the policies against the present pandemic, equity has not been a particularly noticeable priority… Instead, the focus has been on drastic control and sudden lockdowns…with little attention paid to labourers who lose their jobs or the many migrant workers, the poorest of the poor, who are kept hundreds of miles from their homes”.

COVID-19 may still bring major reforms, such as Roosevelt’s New Deal response to the Great Depression. But now, it seems likely to usher in a world where insecurity and unpredictability define the new normal. While professing to protect victims’ interests, ethno-populism blames ‘Others’ as the enemy responsible.

Still, many hope for a silver lining. Sen suggests that “a better society can emerge from the lockdowns”, as happened after World War Two, with greater welfare state provisioning and labour protections in much of the West and agrarian reforms in East Asia. But there is nothing to guarantee a better ‘new normal’.

Beyond neoliberalism?

For many, Joe Biden’s election to succeed Trump is being celebrated as a resurgent triumph for neoliberalism, enabling the US and the rest of the world to return to ‘business as usual’.

Incredibly, another Nobel laureate Michael Spence has even called for structural adjustment programme conditionalities for countries seeking help from the Bank and Fund, repudiating the Bank’s Growth Commission he once chaired, i.e., which found that seemingly fair, often well-intentioned conditionalities had resulted in “lost decades” of development.

But thankfully, there is widespread recognition that all is not well in the world neoliberalism and Western dominance created. Incredibly, Klaus Schwab, transnational capitalism’s high priest, has conceded, “the neoliberalist … approach centers on the notion that the market knows best, that the ‘business of business is business’...Those dogmatic beliefs have proved wrong”.

Instead, he advised, “We must move on from neoliberalism in the post-COVID era”, recognising: “Free-market fundamentalism has eroded worker rights and economic security, triggered a deregulatory race to the bottom and ruinous tax competition, and enabled the emergence of massive new global monopolies. Trade, taxation, and competition rules that reflect decades of neoliberal influence will now have to be revised”.

Will we ever learn?

The philosopher Santayana once warned, “Those who cannot remember the past are condemned to repeat it.” Hegel had observed earlier that history repeats itself, to which Marx added, “the first time as tragedy, the second time as farce”. Nevertheless, hope remains an incurable disease that keeps us all striving and struggling.

As FDR reminded his supporters, no progressive policies will come about simply by relying on the goodwill of those in authority. Instead, they will only be enacted and implemented thanks to popular pressure from below. As Ben Phillips has put it, “the story of 2021 has not yet been written: we can write it; we can right it”.

Stop blaming industrial policy

Vladimir Popov, Jomo Kwame Sundaram

BERLIN, KUALA LUMPUR: Industrial policy – or the promotion of particular investments, technologies, industries, regions and enterprises – has been practiced by a variety of governments to try to accelerate economic growth and transformation.

The ascendance of the Washington Consensus, inspired by the neoliberal counter-revolution in economics, focused on alleged national macroeconomic mismanagement in developing countries and later, transition economies. This was typically blamed on ‘soft budget constraints’ (SBCs) in socialist states and enterprises, macroeconomic populism and industrial policy.

Blaming industrial policy

Enterprise-level SBCs have also been wrongly blamed on industrial policy to promote certain economic activities, usually manufacturing with more advanced technologies. In practice, most industrial policy was quite selective, i.e., involving support of some industries, regions and enterprises at the expense of others.

While such selective support may or may not have been successful in promoting targeted industries, industrial policy has been wrongly, and sometimesdeliberately blamed for both enterprise and national level fiscal SBCs. Fiscal SBCs have been wrongly blamed on enterprise-level SBCs in socialist states, macroeconomic populism and industrial policy.

But contrary to many economists’ presumptions, in most economies, including many centrally planned ‘socialist’ ones, few enterprises were exempted from budgetary discipline. SBCs were therefore the very rare exception, not the rule, to promote desired new economic activities.

Enterprise-level SBCs did not “permeate all organizations” in socialist countries, as often claimed and assumed, but were instead quite selective, i.e., subsidies were provided to some enterprises, industries or regions, typically at the expense of others.

All centrally planned economies had both explicit and implicit subsidies. In most Eastern European and Soviet countries during 1989-1992, on the eve of transition, direct subsidies in the government budget amounted to 10-15% of national income.

In addition to direct subsidies for public utilities, housing and food, there were implicit price subsidies, particularly for users of fuel, energy and raw materials. Besides explicit subsidies from government budgets, rents from unsustainable, non-renewable resource extraction were shared with industries and consumers via lower prices.

Dwarf infant industries

The fiscal problem was not due to subsidization per se, or even to subsidization of manufacturing – at the expense of resource industries, trade and financial services. Rather, the problem was in the way such subsidization was carried out, i.e., by maintaining higher domestic prices for manufactured goods.

Such import-substituting industrialization (ISI) typically created industries which rarely became internationally competitive and viable. There have been all too many examples of failed ISI requiring ongoing subsidization of ‘infant industries’ incapable of ever becoming internationally uncompetitive.

These industries were exposed as unviable and unsustainable with trade liberalization and the end of Soviet era trade arrangements in the 1990s. Soviet industrialization from the 1930s had survived before that due to its insulated economic environment, with the ratio of Soviet exports to GDP not rising until fuel sales abroad rose with higher prices from the 1970s.

Perestroika reforms, initiated by reformist Soviet leader Gorbachev after the mid-1980s, failed to accelerate needed enterprise reforms or economic growth, but instead led to the ‘transformational recession’ of the 1990s, greatly exacerbated by the reforms during Boris Yeltsin’s first presidential term.

Many other enterprises – mainly in heavy industries, and often relying on Soviet technology, advice and aid – in other ‘socialist’ economies and developing countries subject to Soviet influence, experienced similar fates.

Thus, nations which tried to challenge Western hegemony met similar fates despite trying to make a virtue of ‘self-reliance’ compelled by the need to cope with Western-led trade and investment sanctions.

Successful industrial policy

Most countries trying to industrialize or to accelerate industrialization started with ISI, with effective protection enabling new enterprises to produce for domestic markets by keeping out imported foreign substitutes with prohibitively high tariffs and non-tariff trade barriers.

But many IS enterprises continued to survive, even profit from such supposedly temporary tariff protection and other government support, never becoming internationally competitive as promised by the ISI strategy.

In more successful ‘late developing’ economies, government support was conditional on meeting performance criteria which effectively attracted private investments. Such investors sought more handsome ‘rents’ by accelerating technological progress, productivitand international competitiveness.

Thus, for example, ‘effective protection conditional on export promotion’ enabled the emergence of internationally competitive enterprises in some East Asian economies. Export orientation has been especially important in improving output quality to meet internationally competitive product quality and performance standards while achieving cost competitiveness.

Without more effective means for disciplining enterprises to accelerate development, export-orientation – promoted by government policy, incentives and other support – has contributed to successful catch-up growth. East Asian economies subsidized competitive export-oriented industries which accelerated economic growth and transformation, some more successfully than others.

In China, for instance, exports compared to GDP increased from 5% in 1978 to 35% in 2006, before declining to 20% in 2018, while its GDP grew at an average of 10% annually, with its population rising slower than in most other developing countries due its ‘one child’ policy.

Appropriate industrial policy needed

Budget constraints in socialist economies were generally stronger than in developing countries and no less strict than in developed countries on average. SBCs in socialist economies were never pervasive, as widely believed, but selective, i.e., subsidizing some enterprises or industries at the expense of others.

Such selective support, while typical of industrial policy, may or may not successfully promote internationally competitive enterprises, but certainly provides no empirical support for the claim of pervasive SBCs in ‘socialist’ economies.

With state-owned enterprises, strict fiscal and enterprise-level discipline, including budget constraints, have led to restructuring, and more rarely, closures. But even when budget constraints have been less than strict, they have not been pervasive, as fiscally disciplined ‘socialist’ economies could not afford otherwise.

National-level macroeconomic mismanagement in developing countries and transition economies has all too often by ideologically defined by neoliberal economics. In so far as macroeconomic challenges are real and demand pragmatic policy attention, they should not be defined by distracting neoliberal chimera of alleged SBCs variously blamed on socialism, populism and industrial policy.

Unfortunately, the mythology surrounding SBCs has been used to throw the industrial policy baby out with the bathwater of ISI cul de sacs. Much more appropriate, yet pragmatic industrial policy is needed for developing countries and transition economies to ‘catch up’, as achieved by some East Asian and other economies.