A New Narrative for Climate Resilience

By Jomo Kwame Sundaram, Research Advisor, Khazanah Research Institute

at the National Climate Governance Summit

in a fireside chat, moderated by Khoo Hsu Chuang, Managing Director, KHC Ventures Sdn Bhd

The panel discussion began with Khoo Hsu Chuang inviting Dr. Jomo to share his insights on the global response to the climate crisis.

Dr. Jomo expressed deep concern over the lack of commitment from developed nations, highlighting setbacks such as the rejection of the Kyoto Protocol, the negative effects of the United States’ Inflation Reduction Act on other countries, and the insufficient progress on the commitments made during various UNFCCC COPs.

He noted the heightened vulnerability of tropical countries like Malaysia, which are more exposed to climate risks due to their geographic and economic conditions. These nations face significant challenges in implementing adaptation measures, leaving them increasingly susceptible to the detrimental impacts of climate change.

He called on wealthy nations to rethink their priorities and assume greater responsibility for financing both mitigation and adaptation efforts in developing countries. He emphasized that effective climate action hinges on robust international cooperation, including the sharing of advanced technologies and resources to support sustainable solutions.

In response to Hsu Chuang’s observation about the declining flow of finances into environmental projects and the low political will to enact change due to political attractions of delaying climate action, Dr. Jomo highlighted China’s leadership in advancing renewable technologies, such as solar power, batteries, and electric vehicles (EVs), contrasting it with Malaysia’s modest efforts to tackle the bull by its horns.

Despite Malaysia being the world’s second-largest exporter of photovoltaic solar panels, its domestic energy grid remains heavily reliant on non-renewable energy sources, notably coal. Dr. Jomo pointed out that the transition by Independent Power Producers (IPPs) from diesel to coal suggests regression rather than progress with the turn to private commercial priorities.

He urged Malaysia to capitalize on its potential to enhance the wellbeing of its citizens, stressing practical solutions like affordable EVs including motorcycles rather than luxury EVs, only accessible to the wealthy. Additionally, he emphasized the need for comprehensive policy frameworks to guide investments, stimulate innovation, and drive meaningful change, pointing out that many ostensible climate solutions actually delay rather than accelerate climate progress.

Dr. Jomo called on developed nations to fulfill their responsibilities to more adequately finance climate solutions, including adaptation, while urging Malaysia to adopt a more strategic approach to harness its renewable energy potential.

By focusing on accessible technologies and implementing more strategic policies, Malaysia can build a more resilient energy system and contribute more effectively to both climate mitigation and adaptation.

“I am very alarmed by the situation in the world today. We have a situation where there is very little seriousness in terms of efforts towards reversing, or at least stopping, the continued warming of the Earth. This is extremely serious, precisely because most rich countries, primarily responsible for the warming of the planet, do not seem to have the resolve”

“We need a far more hardnosed attitude while fully harnessing the potential for improving the wellbeing of Malaysians via better lifestyles and choices.”

• Jomo Kwame Sundaram, Research Advisor, Khazanah Research Institute

“The financialization of the environment, some say, has slowed down…..And then, of course, political will is something which is lacking in most parts of the world.”

• Khoo Hsu Chuang, Managing Director, KHC Ventures Sdn Bhd

Recording and post is also available online here: https://www.cgmalaysia.com/ncgs24

Global Poverty Grows as Super-Rich Get Richer Faster

By Jomo Kwame Sundaram and Siti Maisarah Zainurin

KUALA LUMPUR, Malaysia, Aug 28 2024 (IPS) - Oxfam expects the world’s first trillionaire within a decade and poverty to end in 229 years! The wealth of the world’s five richest men has more than doubled from 2020, as 4.8 billion people became poorer.

The 2024 Oxfam report entitled Inequality Inc. warned, “We’re witnessing the beginnings of a decade of division” as billions cope with the “pandemic, inflation and war, while billionaires’ fortunes boom”.

“This inequality is no accident; the billionaire class is ensuring corporations deliver more wealth to them at the expense of everyone else”, noted Oxfam International’s Amitabh Behar.

Driving inequality

Summarising the report, Tanupriya Singh noted gaps between rich and poor, and between wealthy nations and developing countries had grown again for the first time in the 21st century as the super-rich became much richer.

The Global North has 69% of all wealth worldwide and 74% of billionaire riches. Oxfam notes contemporary wealth concentration began with colonialism and empire.

Since then, “neo-colonial relationships with the Global South persist, perpetuating economic imbalances and rigging the economic rules in favour of rich nations”.

The report notes, “economies across the Global South are locked into exporting primary commodities, from copper to coffee, for use by monopolistic industries in the Global North, perpetuating a colonial-style ‘extractivist’ model”.

Inequalities within rich nations have grown, with marginalised communities worse off, giving rise to rival ethno-populisms and vicious identity politics.

Seventy per cent of the world’s largest corporations have a billionaire as principal shareholder or chief executive. These firms are worth over $10 trillion, which exceeds the total output of Latin America and Africa.

The incomes of the rich have grown much faster than for most others. Hence, the top 1% of shareholders own 43% of financial assets worldwide – half in Asia, 48% in the Middle East, and 47% in Europe.

Between mid-2022 and mid-2023, 148 of the world’s largest corporations made $1.8 trillion in profits. Meanwhile, 82% of 96 large corporations’ profits went to shareholders via stock buybacks and dividends.

Only 0.4% of the world’s largest companies have agreed to pay minimum wages to those contributing to their profits. Unsurprisingly, the poorer half of the world earned only 8.5% of world income in 2022.

The wages of almost 800 million workers have not kept up with inflation. In 2022 and 2023, they lost $1.5 trillion, equivalent to an average of 25 days of lost wages per employee.

In addition to income inequality, the 2024 Oxfam Report noted workers face mounting challenges due to stressful workplace conditions.

The gap between the incomes of the ultra-rich and workers is so huge that a female health or social worker would need 1,200 years to earn what a Fortune 100 company CEO makes annually!

Besides lower wages for women, unpaid care work subsidises the world economy by at least $10.8 trillion yearly, thrice what Oxfam terms ‘tech industry’.

Monopoly power

Oxfam notes that monopoly power has worsened world inequality. Thus, a few corporations influence and even control national economies, governments, laws, and policies in their own interest.

An International Monetary Fund (IMF) study found monopoly power responsible for 76% of the fall in the labour share of US manufacturing income.

Behar noted, “Monopolies harm innovation and crush workers and smaller businesses. The world hasn’t forgotten how pharma monopolies deprived millions of people of COVID-19 vaccines, creating a racist vaccine apartheid while minting a new club of billionaires”.

Between 1995 and 2015, 60 pharmaceutical companies merged into ten Big Pharma giants. Although innovation is typically subsidised with public funds, pharmaceutical monopolies price-gouge with impunity.

Oxfam notes the Ambani fortune in India comes from monopolies in many sectors enabled by the Modi regime.

Ambani’s son’s recent extravagant wedding celebrations flaunted extreme wealth concentration worldwide.

The 2021 Oxfam report estimated that “an unskilled worker would need 10,000 years to earn what Ambani made in an hour during the pandemic and three years to earn what he made in a second”.

Unsurprisingly, the 2023 Oxfam Report noted, “India’s richest 1% own around 40% of the country’s wealth, while over 200 million people continue to live in poverty”.

Fiscal subordination

Corporations have increased their value through a “sustained and highly effective war on taxation … depriving the public of critical resources”.

As many corporations increased their profits, the average corporate tax rate dropped from 23% to 17% between 1975 and 2019. Meanwhile, around a trillion dollars went into tax havens in 2022 alone.

Of course, falling corporate tax rates are also due to “the broader neoliberal agenda promoted by corporations and their wealthy owners, often alongside Global North countries and international institutions such as the World Bank”.

Meanwhile, pressures for fiscal austerity have grown as government tax revenue has declined relatively for decades. High government indebtedness with corporate tax evasion and avoidance have exacerbated austerity policies.

Underfunded public services have adversely affected consumers and employees, especially health and social protection. Higher interest rates have worsened debt crises in developing nations.

With governments fiscally constrained from sustaining public services, privatisation advocates have become more influential, gaining greater control of public resources by various means.

Private corporations profit from discounted public asset sales, public-private partnerships and government contracts to deliver public policies and programmes.

“Major development agencies and institutions… have found common ground with investors by embracing approaches that ‘de-risk’ such arrangements by shifting financial risk from the private to the public sector”, the report states.

Access to essential public services should be universal. Insisting on private profit-making considerations deprives marginalised communities of access, worsening inequalities.

Related IPS Articles

·                   Paltry International Support for Spending Needs Sets South Further Back

·                   IMF, World Bank Must Urgently Help Finance Developing Countries

·                   COVID-19 Compounding Inequalities

·                   The Best Law Capital Can Buy

·                   Meritocracy Legitimizes, Deepens Inequality

·                   Financialization Increases Inequality

·                   Inequality and Its Many Discontents

·                   Neoliberal Reforms Strengthening Monopoly Power and Abuses

·                   Globalization, Inequality, Convergence, Divergence

·                   Tackling Inequality Talk Is Easy

Siti Maisarah Zainurin will join a Malaysian government research institute after completing work at Khazanah Research Institute.

Available online here: Global Poverty Grows as Super-Rich Gets Richer Faster

Handling Financial Crises in the South

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Aug 14 2024 (IPS) - When history repeats itself, the first time is a tragedy; the next is a farce. If we fail to learn from past financial crises, we risk making avoidable errors, often with irreversible, even tragic consequences.

Between rock and hard place

Many people worldwide suffered greatly during the 2008-2009 global financial crisis (GFC) and the Great Recession. However, the experiences of most developing nations were significantly different from those of the global North.

Developing nations’ varied responses reflected their circumstances, the constraints of their policymakers, and their understanding of events and options.

Hence, the global South reacted very differently. With more limited means, most developing countries responded quite dissimilarly to rich nations.

Hard hit by the GFC and the ensuing Great Recession, developing countries’ financial positions have been further weakened by tepid growth since. Worse, their foreign reserves and fiscal balances declined as sovereign debt rose.

Most emerging market and developing economies (EMDEs) mainly save US dollars. The few countries with large trade surpluses have long bought US Treasury bonds. This finances US fiscal, trade, and current account deficits, including for war.

Vagaries of finance

After the GFC, international investors – including pension funds, mutual funds, and hedge funds – initially continued to be risk-averse in their exposure to EMDEs.

Thus, the GFC hit growth worldwide through various channels at different times. As EMDE earnings and prospects fell, investor interest declined.

But with more profits to be made from cheap finance, thanks to ‘quantitative easing’, funds flowed to the Global South. As the US Fed raised interest rates in early 2022, funds fled developing nations, especially the poorest.

Long propped up by easy credit, real estate and stock markets collapsed. With finance becoming more powerful and consequential, the real economy suffered.

As growth slowed, developing countries’ export earnings fell as funds flowed out. Thus, instead of helping counter-cyclically, capital flowed out when most needed.

The consequences of such reversals have varied considerably. Sadly, many who should have known better chose to remain blind to such dangers.

After globalisation peaked around the turn of the century, most wealthy nations reversed earlier trade liberalisation, invoking the GFC as the pretext. Thus, growth slowed with the GFC, i.e., well before the COVID-19 pandemic.

Markets collapse

Previously supported by the Great Moderation’s easy money, stock markets in EMDEs plunged in the GFC. The turmoil arguably hurt EMDEs much more than rich nations.

Most rich and many middle-income households in EMDEs own equities, while many pension funds have increasingly invested in financial markets in recent decades.

Financial turmoil directly impacts many incomes, assets and the real economy. Worse, banks stop lending when their credit is most needed.

This forces firms to cut investment spending and instead use their savings and earnings to cover operating costs, often causing them to lay off workers.

As stock markets plummet, solvency is adversely impacted as firms and banks become overleveraged, precipitating other problems.

Falling stock prices trigger downward spirals, slowing the economy, increasing unemployment, and worsening real wages and working conditions.

As government revenues decline, they borrow more to make up the shortfall.

Various economies cope differently with such impacts as government responses vary.

Much depends on how governments respond with countercyclical and social protection policies. However, earlier deregulation and reduced means have typically eroded their capacities and capabilities.

Policy matters

Official policy response measures to the GFC endorsed by the US and IMF included those they had criticised East Asian governments for pursuing during their 1997-1998 financial crises.

Such efforts included requiring banks to lend at low interest rates, financing or ‘bailing out’ financial institutions and restricting short selling and other previously permissible practices.

Many forget that the US Fed’s mandate is broader than most other central banks. Instead of providing financial stability by containing inflation, it is also expected to sustain growth and full employment.

Many wealthy countries adopted bold monetary and fiscal policies in response to the Great Recession. Lower interest rates and increased public spending helped.

With the world economy in a protracted slowdown since the GFC, tighter fiscal and monetary policies since 2022 have especially hurt developing countries.

Effective counter-cyclical policies and long-term regulatory reforms were discouraged. Instead, many complied with market and IMF pressures to cut fiscal deficits and inflation.

Reform finance

Nevertheless, appeals for more government intervention and regulation are common during crises. However, procyclical policies replace counter-cyclical measures once a situation is less threatening, as in late 2009.

Quick fixes rarely offer adequate solutions. They do not prevent future crises, which rarely replay previous crises. Instead, measures should address current and likely future risks, not earlier ones.

Financial reforms for developing countries should address three matters. First, needed long-term investments should be adequately funded with affordable and reliable financing.

Well-run development banks, relying mainly on official resources, can help fund such investments. Commercial banks should also be regulated to support desired investments.

Second, financial regulation should address new conditions and challenges, but regulatory frameworks should be countercyclical. As with fiscal policy, capital reserves should grow in good times to strengthen resilience to downturns.

Third, countries should have appropriate controls to deter undesirable capital inflows which do not enhance economic development or financial stability.

Precious financial resources will be needed to stem the disruptive outflows that invariably follow financial turmoil and to mitigate their consequences.

Related IPS Articles

·                   US Fed- Induced World Stagnation Deepens Debt Distress

·                   Developing Countries’ Government Debt Crises Loom Larger

·                   Needed Global Financial Reforms Foregone yet Again

·                   Developing Countries Need Monetary Financing

·                   Inflation Phobia Hastens Recessions, Debt Crises

·                   Finance Drives World to Stagflation

·                   Financialization at Heart of Economic Malaise

·                   Urgently Needed Deficit Financing No Excuse for More Fiscal Abuse

Available online here: https://www.ipsnews.net/2024/08/handling-financial-crises-south/