New Approaches Urgently Needed to Tackle Resurgent Social Crises

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Dec 5 2024 (IPS) - Despite uneven economic recovery since the pandemic, poverty, inequality, and food insecurity continue to worsen, including in the Asia-Pacific region, which used to fare better than the rest of the Global South.

Food matters

These trends are not new but have been around for some time. Food security has deteriorated worldwide for a decade and will likely worsen.

Food security measures are more indicative of well-being than traditional poverty measures, which reflect cash incomes subject to inflation and spatial variations. After all, over half of the poor’s incomes worldwide are spent on food.

Due to global heating and rising sea levels, seawater is entering rice fields in Vietnam, Bangladesh, and other countries. Over ten Vietnamese provinces are affected, and less rice production will raise prices, worsening food insecurity.

There have been uneven and modest improvements in health indicators for the Asia-Pacific region, home to three-fifths of the world population. More is needed for preventive health instead of the typical focus on curative services.

In this connection, governments should realise that revenue-financed health systems are more equitable and efficient than either private or social insurance systems touted by all too many consultants.

Grim trends

Today’s macroeconomic situation differs from the Great Stagnation of the 1980s, which especially set back Latin America and Sub-Saharan Africa.

Unlike then, recent downturns have also hit many Asian economies. Recent ostensibly counter-inflationary measures have deepened stagnation in much of the world.

Geopolitics increasingly redirects trade and investments as economic measures are increasingly weaponised. The most vulnerable are most likely to suffer.

The Sri Lankan and Pakistani economies have been in crisis recently as others struggle to avoid similar fates. Debt distress demands attention, but international cooperation is crucial.

After two and a half years of unnecessarily raised interest rates, the US Federal Reserve recently started lowering them at the end of the Northern Hemisphere summer.

Why were those interest rates raised in the first place? Ostensibly due to inflation. But higher prices in recent years have been mainly due to supply-side disruptions, not ‘excessive’ demand.

Raising interest rates has not helped much, as demand-side contraction cannot address supply-side disruptions but only worsens macroeconomic stresses.

Exceptions

Higher interest rates have adversely affected the whole world, including Europe. But unlike other central banks, only the US Fed is committed to achieving full employment.

Such US exceptionalism is part of the problem. However, most economies worldwide have suffered from higher interest rates, which have deepened economic stagnation.

The US has maintained full employment through fiscal policy and has borrowed cheaply from the rest of the world due to its ‘exorbitant privilege’, which is denied to others.

However, Japan’s and China’s central banks have refused to follow the West in raising interest rates. Hence, the pain in economies following their lead has been less severe.

Many governments’ fiscal and debt problems have constrained social expenditures, typically the first victims of budget austerity measures.

Financialization

In recent decades, the Bretton Woods institutions have promoted financialization, often by invoking UN Sustainable Development Goals (SDGs) and climate financing slogans.

With the West’s ‘quantitative easing’ after the 2008 global financial crisis, slogans like ‘from billions to trillions’ encouraged more government borrowing on commercial terms.

Rising interest rates from early 2022 have hit developing countries, forcing macroeconomic authorities to increase debt servicing.

Many countries struggle to service debt worldwide by cutting social spending. This has hit nations facing debt crises and governments trying to avoid more debt distress.

New lessons

During the pandemic, some macroeconomic authorities resorted to policies previously eschewed. Two Southeast Asian nations turned to ‘monetary financing’ of pandemic spending: central banks lent directly to finance ministries, bypassing markets.

The International Monetary Fund also issued special drawing rights (SDRs). Such extraordinary measures are necessary to meet the SDGs and keep temperatures from rising over 1.5oC above pre-industrial levels.

The Banks of Canada and England former Governor Mark Carney, now UN Special Envoy for Climate Finance and Action, has warned that the 1.5oC threshold will likely be exceeded in under a decade.

The world cannot count on some miraculous future invention to reverse irreversible planetary heating processes and their many ramifications.

New realism

Pragmatism demands addressing realities faced. Many such problems are beyond the scope of the ministries responsible for social spending, policy and protection.

Due to ‘reshoring’ and digitalisation, new investment fads will not create enough jobs. New types of socially valuable employment are needed, with many touting the commercialisation of care work.

However, most of our society’s less well-off will be unable to afford commercial care work unless their incomes rise dramatically, which seems unlikely soon.

An ‘all-of-government’ approach remains relevant for developing countries to better cope with and reverse some of the worst social trends.

Trying to do better with the limited resources available for social spending will only be adequate if the ministries responsible for macroeconomic policy, finance, and other related matters cooperate much better than ever.

Improved all-of-government cooperation and coordination work much better with a ‘whole-of-society’ approach to better tackle the social challenges of our times.

Available online here: https://www.ipsnews.net/2024/12/new-approaches-urgently-needed-tackle-resurgent-social-crises/

Western Finance Ruining Economies of the Rest

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Nov 19 2024 (IPS) - Western financial policies have been squeezing economies worldwide. After being urged to borrow commercial finance heavily, developing countries now struggle with contractionary Western monetary policies.

Central banks

‘Unconventional monetary measures’ in the West helped offset the world economic slowdown after the 2008 global financial crisis.

Higher interest rates have worsened contractions, debt distress, and inequalities due to cost-push inflation triggered by ‘geopolitical’ supply disruptions.

Western central bank efforts have tried to check inflation by curbing demand and raising interest rates. Higher interest rates have worsened contractionary tendencies, exacerbating world stagnation.

Despite major supply-side disruptions and inappropriate policy responses since 2022, energy and food prices have not risen correspondingly. But interest rates have remained high, ostensibly to achieve the 2% inflation target.

Although it has no rigorous basis in either theory or experience, this 2% inflation target – arbitrarily set by the New Zealand Finance Minister in 1989 to realise his “2[%] by ’92” slogan – is still embraced by most rich nations’ monetary authorities!

For over three decades, ‘independent’ central banks have dogmatically pursued this monetary policy target. Once raised, Western central banks have not lowered interest rates, ostensibly because the inflation target has not been achieved.

Independent fiscal boards and other pressures for budgetary austerity in many countries have further reduced fiscal policy space, suppressing demand, investments, growth, jobs, and incomes in vicious cycles.

Debt crises

Before 2022, contractionary tendencies were mitigated by unconventional monetary policies. ‘Quantitative easing’ (QE) provided easy credit, leading to more financialization and indebtedness.

QE also made finance more readily available to the South until interest rates were increased in 2022. As interest rates rose, pressures for fiscal austerity mounted, ostensibly to improve public finances.

Policy space and options have declined, including efforts to undertake developmental and expansionary interventions. Less government spending capacity to act counter-cyclically has worsened economic stagnation.

Comparing the current situation with the 1980s is instructive. The eighties began with fiscal and debt crises, which caused Latin America to lose at least a decade of growth, while Africa was set back for almost a quarter century.

The situation is more dire now, as debt volumes are much higher, while government debt is increasingly from commercial sources. Debt resolution is also much more difficult due to the variety of creditors and loan conditions involved.

Different concerns

With full employment largely achieved with fiscal policy after the global financial crisis, US policymakers are less preoccupied with creating employment.

Meanwhile, the US’s ‘exorbitant privilege’ enables its Treasury to borrow from the rest of the world by selling bonds. Hence, the US Fed’s higher interest rates from 2022 have had contractionary effects worldwide.

As the European Central Bank (ECB) followed the Fed’s lead, concerted increases in Western interest rates attracted funds worldwide.

Western interest rates remained high until they turned around in August 2024. Developing countries have long paid huge premiums well above interest rates in the West.

However, higher interest rates due to US Fed and ECB policies caused funds to flow West, mainly fleeing low-income countries since 2022.

However, growth and job creation remain policy priorities worldwide, especially for governments in the Global South.

Protracted stagnation

Why has world stagnation been so protracted? Although urgently needed, multilateral cooperation is declining.

Meanwhile, international conflicts have been increasingly exacerbated by geopolitical considerations. Increased unilateral sanctions driven by geopolitics have also disrupted international economic relations.

Barack Obama’s ‘pivot to Asia’ started the new Cold War to isolate and surround China. National responses to the COVID-19 pandemic worsened supply-side disruptions.

Meanwhile, the weaponisation of economic policy against geopolitical enemies has been increasingly normalised, often contravening international treaties and agreements.

Such new forms of economic warfare include denying market access despite commitments made with the 1995 establishment of the World Trade Organization.

Trade liberalisation has been in reverse gear since rich nations’ protectionist responses to the 2008 global financial crisis. Globalisation’s promise that trade integration would ensure peace among economic partners was thus betrayed.

Since the first Trump presidency, geopolitical considerations have increasingly influenced foreign direct investments and international trade.

US and Japanese investors were urged to ‘reshore’ from China with limited success, but appeals to ‘friend-shore’ outside China have been more successful.

Property and contractual rights were long deemed almost sacred. However, geopolitically driven asset confiscations have spread quickly.

Financial warfare has also ended Russian access to SWIFT financial transaction facilities and the confiscation of Russian assets by NATO allies.

The Biden administration has extended such efforts by weaponizing US industrial policy to limit ‘enemy’ access to strategic technologies.

It forcibly relocated some Taiwan Semiconductor Manufacturing Corporation operations to the US, albeit with little success.

Canada’s protracted detention of 5G pioneer Huawei founder’s daughter – at US behest – highlighted the West’s growing technology war against China.

Unsurprisingly, inequalities – both intranational and international – continue to deepen. Two-thirds of overall income inequality is international, exacerbating the North-South divide.

Available online here: https://www.ipsnews.net/2024/11/western-finance-ruining-economies-rest/

Climate injustice at Glasgow COP-out

by Anis Chowdhury and Jomo Kwame Sundaram

SYDNEY and KUALA LUMPUR: The planet is already 1.1°C warmer than in pre-industrial times. July 2021 was the hottest month ever recorded in 142 years. Despite the pandemic slowdown, 2020 was the hottest year so far, ending the warmest decade (2011-2020) ever.

Betrayal in Glasgow

Summing up widespread views of the recently concluded Glasgow climate summit, former Irish President Mary Robinson observed, “People will see this as a historically shameful dereliction of duty,… nowhere near enough to avoid climate disaster”.

A hundred civil society groups lambasted the Glasgow outcome: “Instead of a multilateral agreement that puts forward a clear path to address the climate crisis, we are left with a document that takes us further down the path of climate injustice.”

Even if countries fulfil their Paris Agreement pledges, global warming is now expected to rise by 2.7°C from pre-industrial levels by century’s end. Authoritative projections suggest that if all COP26 long-term pledges and targets are met, the planet will still warm by 2.1℃ by 2100.

The United Nations Environment Programme suggests a strong chance of global warming disastrously rising over 1.5°C in the next two decades. Earlier policy targets – to halve global carbon emissions by 2030, and reach ‘net-zero’ emissions by 2050 – are now recognized as inadequate.

The Glasgow UN Framework Convention on Climate Change 26th Conference of Parties (COP26) was touted as the world’s ‘last best hope’ to save the planet. Many speeches cited disturbing trends, but national leaders most responsible for greenhouse gas (GHG) emissions offered little.

Thus, developing countries were betrayed yet again. Despite contributing less to accelerating global warming, they are suffering its worst consequences. They have been left to pay most bills for ‘losses and damages’, adaptation and mitigation.

Glasgow setbacks

Glasgow’s two biggest hopes were not realized: renewing targets for 2030 aligned with limiting warming to 1.5℃, and a clear strategy to mobilize the grossly inadequate US$100bn yearly – promised by rich country leaders before the Copenhagen COP in 2009 – to help finance developing countries’ efforts.

An exasperated African legislator dismissed the Glasgow Leaders’ Declaration on Forests and Land Use as an “empty pledge”, as “yet another example of Western disingenuousness … taking on the role of ‘white saviour’” while exploiting the African rain forest.

Meanwhile, far too many loopholes open to abuse remain, undermining efforts to reduce emissions. Further, no commitment to end fossil fuel subsidies globally – at US$11 million every minute, i.e., around US$6 trillion annually – was forthcoming.

No new oil and gas fields should be developed for the world to have a chance of getting to net-zero by 2050. Nevertheless, governments are still approving such projects, typically involving transnational corporate giants.

Various measures – e.g., ‘carbon capture and storage’ and ‘offsetting’ – have been touted as solutions. But carbon capture and storage technologies remain controversial, unproven at scale, expensive and rarely cost-competitive.

The Glasgow outcome did not include any commitment to fully phase out oil and gas. Meanwhile, the language on coal has been diluted to become virtually toothless: coal-powered plants will now be ‘phased down’, instead of ‘phased out’.

Offsets off track

Offset market advocates claim to reduce emissions or remove GHGs from the atmosphere by some to ‘off-set’ emissions by others. Thus, offsetting often means paying someone poor to cut GHG emissions or forcing them to pay someone else to do so. With more means, big business can more easily afford to ‘greenwash’.

Carbon offset markets have long overpromised, but underdelivered. As they typically exaggerate GHG emission reduction claims, offsetting is a poor substitute for actually cutting fossil fuel use. Meanwhile, disagreements over offset rules have long stalled international climate change negotiations.

Buying offsets allows GHG emitters “to keep polluting”, albeit for a fee. Highly GHG emitting activities by wealthier individuals, companies and nations can thus continue, after “transferring the burden of action and sacrifice to others” – typically to those in poorer nations – via the market.

For Tariq Fancy – who managed ‘sustainable investing’ at BlackRock, the world’s largest fund manager – the market for offsets is a “deadly distraction”, “leading the world into a dangerous mirage, … burning valuable time”.

Meanwhile, most established offset programmes – e.g., the United Nations’ REDD+ programmeor the Kyoto Protocol’s Clean Development Mechanism – have clearly failed to meaningfully reduce GHG emissions.

More than 130 countries have committed to achieve net-zero by 2050. But net-zero targeting has actually allowed the world to continue kicking the can down the road, instead of acting decisively and urgently to verifiably cut GHG emissions.

Hence, it is seen as a cynical “scam”, “nothing more than an expensive cover-up for continued toxic emissions”. Trading non-verifiable offsets – supposedly to achieve net-zero – allows continuing GHG emissions with business almost as usual.

Loss and damage?

Vulnerable and poor nations have argued for decades that rich countries owe them compensation for irreversible damage from global warming. In fact, no UN climate conference has delivered any funding for losses and damages to countries affected.

Rich countries agreed to begin a ‘dialogue’ to discuss “arrangements for the funding of activities to avert, minimize and address loss and damage”. Representing developing nations, Guinea expressed “extreme disappointment” at this ruse to delay progress on financing recovery from and rebuilding after climate disasters.

Developed nations account for two-thirds of cumulative emissions compared to only 3% from Africa. Carbon emissions by the wealthiest 1% of the world’s population were more than twice those of the bottom half between 1990 and 2015!

Low-lying small island nations – from the Marshall Islands to Fiji and Antigua – fear losing much of their land to rising sea levels. But their longstanding call to create a ‘loss and damage’ fund was rejected yet again.

South Pacific island representatives have expressed disappointment at lack of funding for losses and damages, and the watered down language on coal. For them, COP26 was a ‘monumental failure’, leaving them in existential peril.

Although historical responsibility for GHG emissions lies primarily with the wealthy countries, especially the US and the European Union, once again, they have successfully evaded serious commitments to address such longstanding problems due to global warming.

Climate injustice

For the UN Secretary-General, “[o]ver the past 25 years, the richest 10% of the global population has been responsible for more than half of all carbon emissions, and the poorest 50% were responsible for just 7% of emissions”.

The World Bank estimates that, if left unchecked, climate change will condemn 132 million more people into poverty over the next decade, while displacing more than 216 million from their homes and land by 2050.

Meanwhile, poorer countries – who have contributed least to cumulative GHG emissions – continue to suffer most. To address climate injustice, rich countries – most responsible for GHG emissions and global warming – must do much more.

Their finance for developing countries ought to be much more ambitious than US$100bn yearly. Financing terms should be far more generous than currently. Also, funding should prioritize adaptation, especially for the poorest countries most at risk.

Related IPS commentaries

Carbon tax over-rated. 9 Nov. 2021.

https://www.ipsnews.net/2021/11/carbon-tax-rated/

Will Glasgow fix broken climate finance promises? 2 Nov. 2021.https://www.ipsnews.net/2021/11/will-glasgow-fix-broken-climate-finance-promises/

Much more climate finance now! 12 Sep. 2017. http://www.ipsnews.net/2017/09/much-climate-finance-now/

Big business capturing UN SDG agenda? 11 Dec. 2018. http://www.ipsnews.net/2018/12/big-business-capturing-un-sdg-agenda/

Climate deal needs enough public financing. 3 Dec. 2015.

http://www.ipsnews.net/2015/12/climate-deal-needs-enough-public-financing/