Re-engage! America and the World After Bush

On the economic interdependency of nations

I've recently been doing quite a lot of thinking and writing about the highly interdependent state of the world's major politico-economic nations and blocs. In my recent article in the The Christian Science Monitor on the implications of the Georgia crisis I wrote,

The interests of the world's leading powers are deeply entwined. China and Japan hold large amounts of US debt; Russia supplies much of Europe's energy needs; markets, investments, and production systems criss-cross national boundaries.

This interdependence makes open warfare among them less likely. A war would be devastating for the whole system – especially for the US, whose military is stretched very thin and whose economy relies on overseas oil and loans.

I sent that article to Branko Milanovic, the World Bank economist whose work on global inequality I used a lot in Ch. 3 of Re-engage! And I was really pleased when he came right back to me with an email in which he said he saw matters very differently. He also graciously allowed me to publish on my 'Just World News' blog an article he had written that argued almost directly against my thesis that global economic entanglement increases the chances for global peace.

Milanovic's article, which you can read here, is titled From Global Trade to Global War. In it, he draws on the historical precedent  of the lead-up to World War I to argue that

today the struggle between the West and Russia that threatens the world with not only another cold, but rather hot, war is between the two bands of greedy men, and it involves the riches of the Eurasian heartland (“the world island”) east of the Urals. It is an implacable fight because it is a zero-sum game.

I was very happy to publish his piece on my blog, because I think it's very important to discuss and try to understand these matters. If you go over to where the full article is on JWN, you can see we have the start of a good discussion there already.

And today I just put another post onto JWN on the same theme. This one, titled Rest-of-world saving US from recession?, draws on some fascinating work done by Fred Bergsten and other economists that indicates that continues economic growth in the rest of the world has done a significant amount to save the US economy from full-blown economic recession.

This is not an argument we hear made much in the US today, though I think we should! It's a fascinating argument. Bergsten writes:

Every percentage point by which the rest of the world expands domestic demand faster than internal growth in the US produces gains of about $50bn (€32bn, £25bn) for the US external balance. Weighted by US exports, foreign growth exceeded US growth by about 2 percentage points in 2007 and will do so by an average of about 1.5 points this year and next as decoupling persists. Taken together, these currency and comparative growth factors have already improved the real US trade balance, and hence GDP, by almost $150bn since 2006, with gains of another $150bn or so likely through 2009.

In my blog post there, I give hyperlinks to Bergsten's original artuicle and to a few other handy sources on this topic. I also write a few of my own reflections on how, though the globalization of the world's economies has imposed costs on many groups of people-- within the US and far beyond-- still, on balance it seems to have been a very good thing for humanity. Plus, there are ways that its more egregious inequities and excesses can still be reformed and corrected.

Tell me what you think about these matters-- either here or there.

      

Ethanol and the U.S. 'National Interest'

Yesterday, Pres. Bush referred to the huge subsidies the US government gives to farmers to grow corn for conversion into ethanol, a car fuel, by saying:

"the truth of the matter is it's in our national interests that our farmers grow energy, as opposed to purchasing energy from parts of the world that are unstable or may not like us."

For many years, those two words "national interest" have been widely used in US political discussions as a kind of conversation-stopping trump card.  "Oh! The 'national interest' is at stake! Then I'd better stop criticizing the president!" -- that was the kind of reaction past leaders sought, and too often won. But who defines this slippery thing called the "national interest", anyway?  In Chap. 7 of  Re-engage!, I write:

[I]n line with the human security precept that true security is people-centered rather than state-centered, we can start thinking about our own country’s national interest in a new, more people-centered way, very different from the “big power” way it has generally been understood until now.

I then go on to ask some questions about how the adoption of this definition of the US "national interest" might actually change many aspects of our relationship with the rest of the world. (Posing queries intended to stimulate further discussion is a very Quaker thing to do. Anyway, I hope you find these queries in my book thought-provoking, when you read them.)

This currently mounting global food crisis is an instance in which we certainly need to adopt the people-centered rather than big-business-centered definition of "national interest".

It is certainly not in our interest, as US citizens, that the activities of our country's very well-funded Big Ag sector and the financial sectors that have been speculating heavily in foodstuffs-- and fuel-- over recent months should be allowed to continue to pursue policies that are driving hundreds of millions of our fellow-humans in poor countries into hunger, and towards outright, directly life-threatening starvation.

These big business sectors need to be effectively controlled and regulated by a political leadership that understands-- finally!-- that the greed of US car-owners should never be allowed to over-ride the right that all the world's men, women, and children have to adequate and assured sources of nutrition. (Elsewhere in the book, by the way, I note that most "rights" activists in the US have focused far too tightly on issues of civil and political rights around the world, and have given short shrift to the frequently far more pressing issues of social and economic rights.)

The Washington Post's smart and thoughtful business columnist Steve Pearlstein has a good column in today's paper  on the role that speculators have been playing in the current food crisis.  For those of you who are interested, the whole of the column is worth reading. (As was his previous column, here. )

Some highlights from today's Pearlstein:

Speculators have always played a prominent role in commodities markets, but in the past year, they have literally overwhelmed them, causing a dramatic increase in trading volume, volatility and prices and disrupting many of the normal relationships between producers and end-users.

Many of these were the same hedge funds and hot-money investors who had gorged on sovereign debt of developing countries, tech and telecom stocks, subprime mortgages and commercial real estate and now needed a new thing to focus on. Others -- including, it is said, some sovereign wealth funds -- looked to commodities as a hedge against the falling dollar. But perhaps the biggest push came from pension funds, foundations and university endowments whose managers had all gone to the same conferences and read the same academic papers, suggesting that a basket of commodity futures would provide a good hedge against stock and bond market declines.

...[T]he Bank for International Settlements estimates that the value of all the derivative contracts traded on the unregulated over-the-counter markets surged from about $3 trillion in the spring of 2005 to more than $8 trillion today. Whatever the number, it's hard to imagine that it wasn't a significant factor in skyrocking prices...

... [T]he only people who don't believe speculation is driving a commodities bubble are the big commodity traders and the commodities exchanges, which are profiting handsomely from the soaring prices and trading volumes, and the regulators at the Commodities Futures Trading Commission, whose economists cannot seem to find statistical evidence that financial investors have had much of an impact on commodity prices.

US citizens need to start acting responsibly and quickly to bring these devastating speculations in basic foodstuffs under some form of rational and accountable control.  This is in our direct interest as a citizenry, since so many of our own citizens are being harmed by the food-price rises.

But in today's irreversibly hyperconnected world it is always, also, in our interest to make sure that actions taken by our government and our fellow-citizens on Wall Street, in Big Ag, and other big-business sectors stop inflicting harm on the world's poorest, most vulnerable people.

(Cross-posted at Just World News.)

A great resource on food scarcity issues

Raj Patel, a South African specialist in development economics, has published an intriguing-looking book on global food issues.  It's called Stuffed and Starved.  I definitely want to read it!  He also has a very informative blog, of the same name, about the global food crisis. (Hat-tip Rami Zurayk.)

In this post, about the food crisis in Haiti, Patel writes,

The fact that Haiti produced more rice in 1984 than it does now isn’t an accident. The fact that the bags of rice to be found in Haiti have US flags stamped on them is no accident. As former secretary of state for Agriculture, Earl Butz, put it: ‘Hungry men listen only to those who have a piece of bread. Food is a tool. It is a weapon in the US negotiating kit.’

And that’s also one of the ironies behind the complaints of institutions like the IMF and World Bank. At the same time as they bemoan the food crisis, they are its architects. They have aggressively prohibited the kinds of policy that might have mitigated the price shock. No grain reserves. No support for domestic agriculture. No tariff barriers. All so that weapon in the US toolkit could be honed a little sharper.

In this post, about the global rice market, he notes that though many rice-eating countries have been hit by massive price increases in recent weeks, China, South Korea, and Japan have not.

He asks,

What distinguishes all three of these countries from others in Asia? First, they have their own domestic production. Second, they augment domestic production with domestic grain reserves. Third, they're only able to do this because they're aggressive and powerful negotiators in international trade agreements. Japan has long held that its rice isn't just a commodity but a way of life.

The political commitment to sustain this way of life, in China, South Korea and Japan, using some Old School economic policy (subsidies, protection, grain reserves) means that in the lean times, these countries will be able to survive. That's great for them - there's no indication that the lean times are going to end any time soon. And it's tough for the weaker countries in Asia, who find themselves cut loose, in the perfect storm that the free market has produced.

Patel's bio says he used to work at the World Bank and has interned at the WTO.  He certainly seems to know a lot about what he's writing about. This page on his website gives a handy list of "ten things that we all can do to promote justice and food sovereignty."  Definitely worth looking at!