The Global South in the New Cold War

By Jomo Kwame Sundaram

KUALA LUMPUR, Malaysia, Sep 11, 2024 (IPS) - Marginalised and dominated economically by the Global North, developing countries must urgently cooperate to better strive for their shared interests in achieving world peace and sustainable development.

Cold War rivalry

During the first Cold War between the US, NATO, and other allies, on the one hand, and the Soviet Union and its allies, the former prided itself on sustaining economic growth, especially during the post-war Golden Age.

Since the 2008 global financial crisis (GFC), successive governments – led by Obama, Trump and Biden – have all strived to sustain full employment in the US. However, real wages and working conditions for most have suffered.

Exceptionally among monetary authorities, the US Fed’s mandate includes ensuring full employment. However, without the US-Soviet rivalry of the first Cold War, Washington no longer seeks a buoyant, growing world economy.

This has affected US relations with its NATO and other allies, most of which have been hit by worldwide economic stagnation since the GFC. Instead of ensuring worldwide recovery, ‘unconventional monetary policies’ addressing the ensuing Great Recession have enabled further financialisation.

Interest rate hikes slow growth

Since early 2022, the US has raised interest rates unnecessarily. Stanley Fischer, later IMF Deputy Managing Director and US Federal Reserve Bank Vice Chair, and colleague Rudiger Dornbusch found low double-digit inflation acceptable, even desirable for growth.

Before the fetishisation of the 2% inflation target, other mainstream economists reached similar conclusions in the late 20th century. Since then, the US Fed and most other Western central banks have been fixated on inflation targeting, which has no theoretical or empirical justification.

Fiscal austerity policies have complemented such monetary priorities, compounding contractionary macroeconomic policy pressures. Many governments are being ‘persuaded’ that fiscal policy is too important to be left to finance ministers.

Instead, independent fiscal boards are setting acceptable public debt and deficit levels. Hence, macroeconomic policies are inducing stagnation everywhere.

While Europe has primarily embraced such policies, Japan has not subscribed to them. Nevertheless, this new Western policy dogma invokes economic theory and policy experience when, in fact, neither supports it.

The US Fed’s raising interest rates since early 2022 has triggered capital flight from developing economies, leaving the poorest countries worse off. Earlier financial inflows into low-income countries have since left in great haste.

New Cold War contractionary

The new Cold War has worsened the macroeconomic situation, further depressing the world economy. Meanwhile, geopolitical considerations increasingly trump developmental and other priorities.

The growing imposition of illegal sanctions has reduced investment and technology flows to the Global South. Meanwhile, the weaponisation of economic policy is fast spreading and becoming normalised.

After the Iraq invasion fiasco, the US, NATO and others often do not seek UN Security Council to endorse sanctions. Hence, their sanctions contravene the UN Charter and international law. Nonetheless, such illegal sanctions have been imposed with impunity.

With most of Europe now in NATO, the OECD, G7 and other US-led Western institutions have increasingly undermined UN-led multilateralism, which they had set up and still dominate but no longer control.

Inconvenient international law provisions are ignored or only invoked when useful. The first Cold War ended with a unipolar moment, but this did not stop new challenges to US power, typically in response to its assertions of authority.

Such unilateral sanctions have compounded other supply-side disruptions, such as the pandemic, and exacerbated recent contractionary and inflationary pressures.

In response, Western powers raised interest rates in concert, worsening the ongoing economic stagnation by reducing demand without effectively addressing supply-side inflation.

The internationally agreed sustainable development and climate targets have thus become more unattainable. Poverty, inequality and precariousness have worsened, especially for the most needy and vulnerable.

Limited options for South

Due to its diversity, the Global South faces various constraints. The problems faced by the poorest low-income countries are quite different from those in East Asia, where foreign exchange constraints are less of a problem.

IMF First Deputy Managing Director Gita Gopinath has argued that developing countries should not be aligned in the new Cold War.

This suggests that even those walking the corridors of power in Washington recognise the new Cold War is exacerbating the protracted stagnation since the 2008 global financial crisis.

Josep Borrell – the second most important European Commission official, in charge of international affairs – sees Europe as a garden facing invasion by the surrounding jungle. To protect itself, he wants Europe to attack the jungle first.

Meanwhile, many – including some foreign ministers of leading non-aligned nations – argue that non-alignment is irrelevant after the end of the first Cold War.

Non-alignment of the old type – a la Bandung in 1955 and Belgrade in 1961 – may be less relevant, but a new non-alignment is needed for our times. Today’s non-alignment should include firm commitments to sustainable development and peace.

BRICS’s origins are quite different, excluding less economically significant developing countries. Although not representative of the Global South, it has quickly become important.

Meanwhile, the Non-Aligned Movement (NAM) remains marginalised. The Global South urgently needs to get its act together despite the limited options available to it.

Available online here: https://www.ipsnews.net/2024/09/global-south-new-cold-war/

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.

https://www.ipsnews.net/2024/08/global-poverty-grows-super-rich-get-richer-faster/