Category Archives: Economics

Social Media Link: 36th Parallel on South America’s “Strategic Paradox.”

Posted on by
2

I was asked to write a commissioned essay for a special issue on Latin America of a NZ international affairs magazine. I was told by the editor I could write on a specific subject of my choice. I decided to write about what I see as South America’s “Strategic Paradox:” increased overall (macroeconomic) regional prosperity largely brought about by the growth in trade with the PRC (rather than with the US or EU) did not translate into increased domestic social equality, security and stability (as most Western developmental economists and sociologists would believe). Instead, increasing income inequalities caused by limited domestic job growth, few wage improvements and negligible distribution of tax revenues from the expanding import-export sector exacerbated social tensions, leading to more domestic insecurity. To this is added an assortment of pathologies such as public and private sector corruption and negative collaterals like environmental degradation in the emerging primary goods sector (such as in lithium extraction). All of this is set against the backdrop of increasing US hostility to the PRC presence in the region, which it sees as a growing security threat that must be countered.

The result is that South America may be more prosperous than ever in aggregate terms (say, GDP per capita), but it is not more peaceful, stable or secure as a result. My conclusion is that with a few notable exceptions it is a lack of good corporate and public governance that explains the paradox. Meanwhile the great power rivalry in the region has taken on a pernicious dynamic of its own that if left unmitigated will only add fuel to the fire.

Unfortunately, the editor, who is not a political scientist or international relations specialist (she says that she specialises in propaganda and authoritarianism, although from her limited bibliography she shows little knowledge of the extensive literature on each!) decided that the essay was too generalised and lacking in data to be publishable as is (after asking me to limit the essay to 3500 words and write it for a general, not specialist audience). She challenged my mention of the ongoing use of the Monroe Doctrine by US security officials, even though I provided citations for both data and comments when pertinent (15 in all, including Congressional testimony from US military officials and data from the Economic Commission Latin America (ECLA)). I got the distinct impression that she wanted a puff piece, got a critical analysis instead, and decided to condescendingly ask for unreasonable revisions in order to reject the piece without seriously reading it. In other words, she did not like it, but not because of its lack of scholarship but because it did meet her expected editorial slant. In fact. from her tone it appears that she had no idea who I am before she commissioned the essay and then assumed that I am some ignoramus when it comes to discussing South American politics, geopolitics and social dynamics. Y bueno, que le vas a hacer?

The good part of this story is that since I am not paid for the work, am not an academic who needs it on my c.v. for promotion purposes, and have a couple of social media platforms on which to publish and disseminate it without editorial interference from uninformed non-specialists, I told her that I would not do as told, would not do the demanded revisions and instead would publish the piece elsewhere.

KP is one such elsewhere: https://36th-parallel.com/2024/01/05/south-americas-strategic-paradox/

Tell me what you think about it.

” A View from Afar” returns.

Posted on by
1

On Thursday May 11, 2023 at 12PM (noon) NZ time/8PM Wed 10th May US East Coast time/1AM Thursday London time/8 AM Thursday Singapore time and 10AM Thursday Sydney time, the A View from Afar podcast will resume broadcasting. Selwyn Manning and I will discuss the AUKUS agreement and its implications for New Zealand and the fallout from the Discord classified material leaks as well as global affairs from a South Pacific perspective.

The show is interactive so tune in and join us!

Media Link: AVFA on Latin America.

Posted on by
5

In the latest episode of AVFA Selwyn Manning and I discuss the evolution of Latin American politics and macroeconomic policy since the 1970s as well as US-Latin American relations during that time period. We use recent elections and the 2022 Summit of the Americas as anchor points.

A word on post-neoliberalism.

Posted on by
9

I recently read a critique of the market-oriented economic theory known as “neoliberalism” and decided to add some of my thoughts about it in a series of short messages on a social media platform dedicated to providing an outlet for short messaging. I have decided to expand upon those messages and provide a slightly more fleshed out appraisal here.

“Neoliberalism” has gone from being a monetarist theory first mentioned in academic circles about the primacy of finance capital in the pyramid of global capitalism to a school of economic thought based on that theory, to a type of economic policy (via the Washington consensus) promoted by international financial institutions to national governments, to a broad public policy framework grounded in privatisation, low taxation and reduction of public services, to a social philosophy based on reified individualism and decontextualised notions of freedom of choice. Instilled in two generations over the last 35-40 years, it has redefined notions of citizenship, collective and individual rights and responsibilities (and the relationship between them) in liberal democracies, either long-standing or those that emerged from authoritarian rule in the period 1980-2000.

That was Milton Friedman’s ultimate goal: to replace societies of rent-seekers under public sector macro-managing welfare states with a society of self-interested maximizers of opportunities in an environment marked by a greatly reduced state presence and unfettered competition in all social (economic, cultural, political) markets. It may not have been full Ayn Rand in ideological genesis but the social philosophy behind neoliberalism owes a considerable debt to it.

What emerged instead was societies increasingly marked by survivalist alienation rooted in feral capitalism tied to authoritarian-minded (or simply authoritarian) neo-populist politics that pay lip service to but do not provide for the common good–and which do not adhere to the original neoliberal concept in theory or in practice. Survivalist alienation is (however inadvertently) encouraged and compounded by a number of pre- and post-modern identifications and beliefs, including racism, xenophobia, homophobia and social media enabled conspiracy theories regarding the nature of governance and the proper (“traditional” versus non-traditional) social order. This produces what might be called social atomisation, a pathology whereby individuals retreat from horizontal solidarity networks and organisations (like unions and volunteer service and community agencies) in order to improve their material, political and/or cultural lot at the expense of the collective interest. As two sides of neoliberal society, survivalist alienation and social atomisation go hand-in-hand because one is the product of the other.

That is the reality that right-wingers refuse to acknowledge and which the Left must address if it wants to serve the public good. The social malaise that infects NZ and many other formally cohesive democratic societies is more ideological than anything else. It therefore must be treated as such (as the root cause) rather than as a product of the symptoms that it displays (such as gun violence and other anti-social behaviours tied to pathologies of income inequality such as child poverty and homelessness).

As is now clear to most, neoliberalism is dead in any of the permutations mentioned above. And yet NZ is one of the few remaining democratic countries where it is still given any credence. Whether it be out of wilful blindness or cynical opportunism, business elites and their political marionettes continue to blather about the efficiencies of the market even after the Covid pandemic has cruelly exposed the deficiencies and inequalities of global capitalism constructed on such things as “just in time production” and “debt leveraged financing” (when it comes to business practices) and “race to the bottom” when it comes wages (from a labour market perspective).

I shall end this brief by starting at the beginning by way of an anecdote. As I was trying to explain “trickle down” economic theory to an undergraduate class in political economy, a student shouted from the back seats of the lecture hall “from where I sit, it sure sounds more like the “piss on us” theory.

I could not argue with that view then and I can’t argue with it now. Except today things are much worse because the purine taint is not limited to an economic theory that has run its course, but is pervasive in the fabric of post-neoliberal societies. Time for a deep clean.

PS: For those with the inclination, here is something I wrote two decades ago on roughly the same theme but with a different angle. Unfortunately it is paywalled but the first page is open and will allow readers a sense of where I was going with it.

Media Link: “A View from Afar” year-end review.

Posted on by
Reply

Selwyn Manning and I wrapped up this year’s “A View from Afar” podcasts with a review of the past year and some speculation about what is to come. We meander a bit but the themes are clear. You can find the show here.

Media Link: “A View from Afar” on supply chain bottlenecks, commodity (over) concentration and the need for post-pandemic structural reform.

Posted on by
1

Selwyn Manning and I have created YouTube channels under our respective business names in order to promote the “A View from Afar” podcast series. The latest episode examines recent problems of global supply, production and exchange, using a micro-to-macro lens to discuss the interplay between economics, policy and politics in creating and hopefully ameliorating the failures of the pre-pandemic system of trade. You can find it here.

Masking Alone.

Posted on by
6

A while back I was talking to a friend about the reasons why I believe that the US has failed so miserably in managing the Covid-19 pandemic. Our starting point was the idiocy surround the “masks interfere with our freedom” argument. Besides the fact that with individual and collective rights come responsibilities resulting in all sort of public interest regulations that people routinely accept (seatbelts, bike helmets for children, protective gear in the workplace), or the fact that retail outlets and other private entities routinely demand dress standards (“no shoes, no shirts, no service”), the problem appears to be rooted in the dumbing down of the US public over decades coupled with the rise of alternative (often false and conspiratorial) sources of information. As some have mentioned, never before have we had so much information at our finger tips and yet never before have we been so ill-informed.

That means that it is not political polarisation per se or leadership incompetence in the Oval Office that conspired to impede effective public health crisis mitigation. To be sure, once the narrative–encouraged from the White House–became one of “freedom” and “choice” versus THE STATE, the debate about pandemic control was hopelessly lost to the nutters. Rightwing media pushing the “freedom” versus authoritarianism line made things worse. But beyond that, the deep-seated mistrust of government, scientific expertise, health authorities and collective good sense in the US is rooted in something far more pernicious than the MAGA Moron phenomenon.

That something is the the erosion and corruption of what I will broadly describe as “social institutions.” These are the civil and political society groups that, along with their distinctive cultural and ethical mores and norms, are considered to be the foundation of collective identity and, writ large, notions of nationhood. In 2000 Robert Putnam ascribed the hollowing out of American democracy to the loss of these institutions in his book Bowling Alone, where he uses the metaphor of the post-1950s decline of bowling (and bowling alleys) as evidence that US civil society, and along with it civic virtue, was/is in decline. He called this a loss of “social capital.” It is the loss of social capital that is the root cause of today’s US predicament.

I am aware of the many good critiques of Putnam’s book and so will just address and add to the notion that a decline in social institutions is a precursor to the type of political polarisation and social anomaly that exists in the US today.

First of all, Putnam did not adequately explain the relationship between the decline of “social capital” and the evolution of US capitalism over the last half century. The move from postwar industrial logics of production to increasingly service-oriented economics amid a technology-propelled globalisation of commerce and exchange was the main driver in the entrance of women into the commodified labor force amid the destruction of the industrial era social division of labor. Unions declined, part-time work became mainstreamed, two-income families became a necessity rather than a choice, automation and out-sourcing killed off entire industries, corporate savings declined while “leveraged” borrowing and debt increased –the list of changes is long. The US is now a military-industrial, high tech, highly automated service-oriented economy, and the strong industrial class lines that emerged before and after WW2 have now been broken into a small but unified class elite governing over dozens of post-industrial class factions divided by race, region, religion and (types of) recreation.

Income inequalities have increased exponentially since 1980. The US is now a country where the top one percent of income earners own 30 percent of the country’s wealth, more than the entire middle class. The dislocating effects of the economic shifts of the last half century are both broad and deep, extending from corporate cultures, small business practices to inter-personal affective relationships.

To that can be added the alienating effects of advanced telecommunications, particularly the introduction of mass computing technologies that obliterated the barriers between personal, private, public and corporate communications, entertainment and consumption. Take the notion of leisure. What used to be collective pursuits held in public group settings, such as bowling, gradually were replaced by more individualised pursuits done in private settings, like gaming. Profits from physical attendance at sporting or entertainment events have been eclipsed by those generated by televised coverage of the events. Plus, with wages increasingly compressed (again, the reasons are many) and work demands increased, people no longer had the time or money to commit to social networking significantly outside of work-related activities.

Here is a small example. After World War Two my father worked at the General Motors Overseas Corporation (GMOC) based in New York. GMOC was the international production and trading arm of General Motors Corporation based in Detroit. For legal and tax reasons it was a separate business entity from the domestic side of the business, with its top management holding selected senior positions in the overall umbrella structure of the Detroit-based firm.

Back in those days my father was no senior manager. Instead he started as a mailroom clerk and worked his way up. He met my mother, a secretary, at GMOC. During the entire time that he was at GMOC, before he took a job in Argentina and GMOC New York was dismantled and integrated into the Detroit parent company, he played sports for GMOC teams. Baseball in the summer, basketball in the fall and winter, softball in the spring and bowling year round. He and my mom met in Central Park where the outdoor games were held and either had picnics or went out to eat after the games were finished. In colder weather they met in gyms and at the lanes to do variations of the same. When I was very young I was brought along to share those moments along with my parent’s colleagues and young families.

After we moved to Argentina my Dad continued to play softball for a GM team that was established there. It played against other automobile and oil companies (Ford, Chysler, Esso and Shell) and some local Argentine teams keen on improving their skills against US competition. Meanwhile, even before GMOC was reorganised and relocated to Detroit in 1971, the corporate athletic leagues in New York City began to decline as per Putnam’s observation. Younger employees moved to the suburbs rather than live in the buroughs, family pressures and commuting infringed on the time available to play ball, and by the end of the 1970s the entire network of NY corporate sports associations was on life support.

There have been attempts to resurrect or replace these Leagues with mixed success. The point is that their decline was driven not by changes in cultural mores alone but by the irresistible forces operating in production and in the social division of labour that grew out of them.

Even so, cultural mores have been at play in the decline of social capital in the US. The hyper-competitive drive that pushed the evolution of US capitalism has resulted in the emergence of what I think of as a “survivalist alienation” ethos coupled with a liability mentality. People increasingly see each other as competitors rather than colleagues, much less comrades. They abdicate personal responsibility in favour of “other-blaming.” An entire industry–personal injury litigation, aka ambulance chasing–has been built on these twin pillars. This leads to a form of collective narcissism that one might call “hyper-individualism:” it is all about me, me me.

This turn to the self is cloaked in a vulgarisation of social discourse evident in pop culture but extending much beyond it. Even sports have coarsened: cage fighting and scripted wrestling have moved from the fringe to the centre of profit-making athletics.

The impact is seen in what is left of social institutions. The phenomena of raging soccer moms and fighting baseball dads are so common that sports field security for pre-teens is required for insurance purposes and sideline rage has entire social media channels dedicated to it. Little kids now preen and strut, mock their opponents, and generally behave like the lumpenproletarians they see in professional sports. What this amounts to is a rot from within, where the pure soul of sport is carved out and replaced by something far darker.

Likewise, be it in bridge clubs or local volunteer fire departments, the US has seen both declining numbers and declining civility within social institutions. That is the social capital that is being lost. Horizontal solidarities have consequently been disrupted while vertical socio-economic disparities have increased. People are atomised in production and increasingly isolated in civil society. That leads to political alienation and dysfunction, making the terrain, as Gramsci said, “delicate and dangerous” and ripe for “charismatic men of destiny” to stamp their imprint on it. Trump and his GOP minions have done exactly that.

It occurs to me that the dislocating effects of capitalist production in its post-industrial phase coupled with a coarsening of popular discourse in the US lie at the root of the decline in social institutions/social capital that Putnam described, which in turn facilitated political polarisation, media stratification and a retreat into comfortable idiocy on the part of many citizens. That prevented any united approach to pandemic mitigation because the atomising and centrifugal forces at play were (and still are) multiple, overlapped, intertwined–and antagonistically reinforcing around the lightening rod that is the 45th president.

To this can be added two other American pathologies: lack of historical memory and the cultural predisposition towards the “quick fix” rather than more long-term, drawn out and measured responses. The lack of historical memory is not just about the 1918 so-called “Spanish Flu.” It is about any disease, from polio to SARS. Very little in the Trump administration, city or state responses was grounded in historical reads of previous disease eradication efforts (what references were made had mostly to do with case and death statistics, not to the progression of and specific mitigation efforts against the disease). Instead, when not a complete shambles of denial and blame-shifting such as that of the White House, what passed for containment policies were drawn from contemporary experiences around the globe. Even successful Obama-era public health campaigns were derided on partisan grounds. That might not have been problematic in places where the response initially worked, but given that Covid-19 has moved into second- and third-wave mutations, it was no panacea over the longer term.

This wilful lack of historical references is compounded by the American penchant for the “quick fix.” Rather than put on masks, practice social distancing and suffer short term economic deprivation for longer term gain, many Americans preferred to live their lives as usual, without precautions, bleating about their “rights” and “freedom” while they waited for a vaccine to be developed. Here too the lack of historical memory hurt, because many simply did not believe the experts when they said that, based on experience, a vaccine was a year or more away from being developed. As it turns out, vaccines have been developed and rolled out in less than a year, which is truly remarkable. But the disease moved deeper into society as winter came, and now 1 in very 1000 Americans (335,000) have died of it before the vaccine is broadly available. Cases are nearing 20 million and by the time the vaccine is widely available the estimates are that at least 10 million more will be infected and 400,000 American will be dead. Not surprisingly, both the prevalence of the disease and access to vaccines is marshalled along socio-economic class and ethnic lines.

In sum, the wretched excuse of the US pandemic response is the culmination of a long period of decline that is founded on the erosion of social institutions and loss of social capital caused by the evolution of the US mode of production. To be sure there are other intervening variables and factors at play in the cultural and political milieus that contributed to the disaster (because that is what this is–a human disaster in both cause and response). But in the end the problem of the US pandemic response was not one of public health failures but one of US capitalism and its social and political superstructure.

Hence the need during this holiday season for Americans to mask alone.

Media Link: Standing Places interview.

Posted on by
7

I did an interview with former student Ivor Wells for his Standing Places podcast out of London. The chat is a bit of rambling meander across several topics, with pauses and background interruptions, but we manage to cover a fair bit of detail, starting with the issue of self-isolating during the pandemic. Think of it as two old friends having a yarn about life in these times.

Living within our means.

Posted on by
20

Years ago the Argentine sociologist Carlos Weisman wrote a book titled “Living within our Means.” It was a critique of Argentine society that focused on the paradoxical question of why, in a land of plenty, there was so much economic instability, inequality, corruption and political turmoil. His conclusion was basically that natural wealth produced indolence and greed: the vast natural resources in Argentina could be exploited inefficiently and without regard to the future, money was siphoned off of productive sectors into all sorts of nonproductive or money wasting enterprises ill-suited for the economics and demographics of the country, and the surpluses generated by the productive sectors (agriculture and mining in particular) could not only line the pockets of those lucky enough to control the means of production but could also be used to buy off subordinate group consent via State benefit distribution derived from minimal taxation on the export-oriented sectors that generated the bulk of the countries GDP.

His most important observation was that Argentines, so accustomed to an economic system that generated wealth in spite of itself, were living beyond their means. The State sector grew bloated, workers lost sight of the connection between productivity and wages, capitalists hoarded, spent and perfected the arts of tax dodging and capital flight, and politicians used patronage and public goods as a means of currying electoral favour, only to have the military step in from time to time under the pretence of putting things right but in reality only to shift benefits of political control to their civilian allies.

New Zealand is not quite as pathological, but for some time I have seen parallels with Argentina in that it appears that the country has, for at least two decades, been living beyond its means. Think of the so-called export sector.

Traditionally, “export sector” means those business that sell their goods overseas, to foreign clients. In NZ that historically meant agriculture (including cattle and sheep farming) mining, forestry and fishing. More recently, high tech value-added industries like software development have been layered into the export mix. But so too have industries like tourism and foreign language and tertiary education. Yes, tourism and educational services for foreign students are classified as “exports” in NZ even though all of the revenue generated and GDP share provided by these services are domestic in nature. Unlike traditional exports, other than some transportation companies, none of the economic activity associated with either industry is generated from abroad (say, via the sale of goods).

There is something insidious about this. Thriving in a largely unregulated environment, tourism surged. Adventure tourism, adrenaline tourism, hobbit tourism, backpacker and freedom camper tourism, glamour tourism, death tourism (trophy hunting) etc. all exploded even thought the infrastructure required to handle them was insufficient or non-existent. Likewise, dodgy fly by night language schools popped up catering to foreign students as young as high school age, and universities lowered admission standards and course requirements in order to attract unqualified foreigners who were willing to pay enrolment fees up to five times higher than domestic students. It did not matter that these foreign student often wound up as the victims of unscrupulous education “brokers,” local employers, hosts and homestay providers. That was fine because the business owners and senior managers operating these industries were rewarded handsomely for their efforts even if their contributions were not, to be clear, really advancing the productivity of NZ society. Both of these industries saw the foreigner’s dollar as their cash cow and soon became dependent on it. So long as the State got its share of tax revenues, all was hunky dorey as far as the economic-political elite was concerned.

A clear case of a non-traditional “export” that does more harm than good is the cruise line business. These floating Petri dishes used to be pretty scarce in NZ ports but now are now commonplace eyesores from the Bay of Islands to Akaroa and Milford Sound. They are seagoing pollution generators with dodgy labour and hygiene practices that disgorge thousands of clueless leisure lovers onto our shores to watch hokey “cultural” shows, go sight-seeing (including to active volcanoes) on fossil fuel vehicles and buy trinkets and baubles from money-grubbing vendors who otherwise could and should be providing services to their communities. What domestic benefit is derived from them is surprisingly narrow in scope, and yet they continue to come in increasing numbers–at least until CV-19 revealed them for what they are when it comes to public health risks.

Even traditional sectors like fisheries and dairy have come to rely more on export markets than on domestic consumption for their well-being, pushing unsustainable growth, environmental degradation, species destruction and oligopolistic market concentration. Uncoupling commodity pricing from domestic wage levels, some agricultural staples have been priced out of the range of most local consumers while a greater percentage of quotas and production are oriented towards foreign buyers. The situation has become so unbalanced in some sectors that, for example, given a drop in Asian demands due to the CV-19 pandemic, fishermen find it more economical to dump crayfish back into the ocean than sell them in the domestic market. Asian demand for cut wood has dried up, leaving huge surpluses in holding lots that are not being released into the domestic market. The price of many wage goods, consumer non-durables and staples is now set by international markets rather than by local demand, thereby narrowing the range of basic goods purchasable by the average NZ consumer.

In light of this, we might see the arrival of the Coronavirus (CV-19) as a great corrective on the national excess. The first industries to shut down are the ones that really should not have grown so large in the first place: tourism and tertiary education. These have been readily followed by service sectors associated with tourism and foreign students, including accomodation and food service provision.

Now the entire country is poised to “shelter in place.” With the government ordering mandatory closures and shut downs as it ramps up its response, primary and secondary schools have closed and a multitude of service providers have switched to at-home work or temporary closures. Soon a full scale lockdown will be imposed.

Essential industries and core state services continue to operate–transportation, food provision, emergency services, law enforcement, telecommunications, waste disposal, etc. Note that if we strip out the non-essential industries that are now shuttered or curtailed, we have a much smaller overall economic footprint yet a larger State presence within it. That is not necessarily a bad thing.

After years of market-driven logics that among other things pushed the kind of excesses described herein, the State is reassuming its role as macro-manager of the economy and direct provider of public goods and strategic production. Prudent financial management that protected surpluses “for a rainy day” allow the current government to ease the burden of pain inflicted on the working population by CV-19. It can also provide the material basis of an economic re-ordering on grand scale. One can only hope that, thanks to the pandemic, the era of down-sizing and privatisation has been proven to be a false promise when it came to national well-being and prosperity, and that it is replaced with a new economic logic that emphasises the importance of the social relations of production as much as the relations in and control of production itself.

There is one more component to this smaller, “natural” economic footprint: small businesses. The NZ economy runs on small business production and services. From metal working shops to plastics manufacturers, furniture makers and tradespeople, NZ has a middle sector in between the big agro-export corporates and State Owned Enterprises and private-public partnerships. The difference between them and the bloated tourism and tertiary education sectors is that they actually produce things of tangible value that benefit domestic society, not the degree-chasing aspirations or Instagram ambitions of foreigners.

The combination of big exporters, State sector and small businesses, one might say, is the critical component of NZ society. Not tourism, not foreign student education, not bars, restaurants, sports and other forms of mass entertainment. These can be resurrected when the pandemic has passed, but this moment of crisis demonstrates where value is created and preserved in NZ society. And it is not with hedge funds, sports teams, video game arcades, waterfront restaurants with space for tips on their service bills, ski resorts, golf courses or heli-tours.

Needless to say, this is a broad brush depiction of the economy of excess in which we live. There are bound to be fine details that prove the exception to the rule such as it has been depicted here. But the gist is clear: NZ has, as a result of the market-oriented experiment of the last 30 plus years created a entire range of parasitic/opportunist capitalism that contributes relatively little of value to the domestic economy or to the population at large. It is this sector that needs to be excised thanks to the arrival of CV-19.

Calls for self-isolation are getting more forceful as the government ramps up its pandemic threat advisories. This type of quarantine is a form of physical separation based on notions of collective solidarity (and not a form of social distancing, as pundits have called it). People retreat into their homes out a sense of collective responsibility and empathy for others, hoping to weather the worst of the pandemic in order to flatten the curve of its distribution. Here again, the burden of sacrifice is borne by small producers, public servants and waged labour, most of whom do not have access to the type of savings or surpluses that allow the corporates to ride out the storm.

It is these people that deserve government financial relief. Not the corporates or those in the bloated, non-essential and non-productive (in a value-added or material sense) sectors of the economy. Not those in parasitic financial sectors and non-traditional export industries. Not sports leagues and yachties.

In the end the CV-19 pandemic is not only a massive corrective to the world and NZ societies, demonstrating the dark and largely ignored side of the globalisation of production, consumption and exchange. It is more than an economic belt-tightening across the globe. It is a moment for pause and reflection on what living within one’s means really means in practice. For NZ, it means that the time has come to drop the growth is good mantra in certain non-critical sectors of the economy and to refocus energy and resources on those that comprise the economic triad underpinning the good society: “traditional” exporters, small businesses and the State-Owned and public/private enterprises that are the core of the national productive apparatus. This may require major adjustments in all three components, especially in the export sector (to include its very definition), but the moment has arrived thanks to the externality known as Coronavirus.

That result may be a smaller economy than what came before CV-19, but it will be more sustainable, efficient, value-generating and ultimately fairer for NZ society as a whole.

From failure, opportunity comes.

Posted on by
5

When President Trump signed the executive order withdrawing the US signature from the Trans Pacific Partnership Agreement (TTPA), he signed the death warrant of that multinational trade deal in its present form. The US was the core member of the TPPA and held the dominant negotiating position within it, so the decade-in-the-making, laboriously undertaken and vexing complex compact that was agreed to by the other eleven signatories is now all but null and void.

There are options, however, for the TPPA that may allow it to survive and thrive in light of Trump’s unilateral abrogation.

First, the other eleven member states can put the agreement into hibernation, wait for the 2020 US presidential election and hope that a more trade-oriented president succeeds Trump.

Second, they can hope that the Republican congressional leadership will force Trump to reverse his decision sometime between now and 2020. That would only occur if Trump is weakened by some failure and the GOP sensed that it could re-assert its traditional pro-trade stance at his expense. The Democrats would welcome the move for opportunistic partisan reasons even if some of its leading figures such as Bernie Sanders also oppose the TPPA and applauded Trump’s decision to pull plug on it.

Third, the members could look to themselves and re-draw an agreement that is less US-centric. Many of the provisions insisted on by the US could be reconsidered and even dropped in exchange for increased preferences for the interests of previously junior TPPA partners.

Fourth, the remaining TPPA partners could look to fill the void left by the US with another large market economy. The one that springs immediately to mind is China. That is where things get interesting, and where opportunity may lie.

China is already party to the ASEAN-China Free Trade Agreement (ACFTA) that established a regional free trade area that is the largest in terms of population and third largest in term of trade volume and nominal GDP. Some of the ACFTA signatories are also parties to the TPPA (Brunei, Malaysia, Singapore, Vietnam). This agreement is considered to be a “true” free trade agreement in the Ricardian sense because it reduces tariffs across 7,881 product categories to zero percent, with the result being that tariffs on ASEAN goods sold to China fell to 0.1 percent and those of China sold in ASEAN to 0.1 percent in the year the agreement went into force (2010)

The non-US TPPA members could opt to negotiate an agreement with ACTFA as one course of action. That may be difficult given that the TPPA is not a “genuine” FTA as much as it is an investor guarantee agreement (IGA) in which market regulations are altered to attract foreign investors and these are protected from legal liability in the event of disputes with the host state. What is not included in the TPPA are across-the-board reductions to zero tariff, and in fact many domestic industries remain protected or subsidised throughout the TPPA membership as part of the horse trading undertaken during negotiations over its central tenets. But it may be possible to reconcile the two trade deals in an effort to create a new super trade bloc on neo-Ricardian grounds.

Another option might be to invite China to the table. It has the second largest market in the world and is continues to grow at a sustained and rapid pace in spite of the vicissitudes of the world economy over the last two decades. It is making the transition from export platform to a mixed domestic mass consumption/value-added export model, and it has previously expressed interest in joining the TPPA. The US blocked consideration of China’s membership because it saw the TPPA as the economic equivalent of the military “pivot to Asia” announced by the Obama administration, that is, as a hedge against Chinese economic, diplomatic and military influence in the Western Pacific Rim in what amounts to a new Containment Policy in the Asia-Pacific.

With the US gone, China has an opening and the remaining TPPA members have an opportunity. The TPPA will have to be renegotiated, but it is likely that the non-negotiable provisions insisted by the US will not be supported by the Chinese and can be dropped in the effort to entice their interest. In turn, China might have to accept something less than blanket reductions in uniform tariffs and agree to a tariff reduction regime that is more segmented and scaled in orientation and gradual and incremental in application (i.e. more product or industry specific and phased in over a longer period of time). That is clearly within the realm of possibility, as is Chinese agreement to other TPPA provisions stripped of their US-centric orientation.

China has already signalled its intentions in this regard. President Xi used this year’s Davos Forum to preach the virtues of free trade and global commerce, arguing against protectionism as an impediment to international understanding and exchange. China has proposed the creation of a Regional Comprehensive Economic Partnership (RCEP) along the lines mentioned above with regard to an ACTFA-TPPA merger but with the provision that the US be excluded. There are many details to be ironed out but the groundwork has been laid for that to happen.

What makes the turn to a China-included trade bloc a potentially win-win proposition for remaining TPPA signatories is that the key provisions demanded by the US–changes in market regulations and preferential market entry clauses for US business interests (including changes in patent and copyright protection) and imposition of limited liability clauses in the event US businesses are sued by local governments–were those that were most resisted by domestic audiences in several TPPA member countries. Removing them not only allows the agreement to be free of those constraints but also diffuses a source of domestic opposition in countries where such things matter.

One thing TPPA states should think carefully about, especially small states like New Zealand, is the invitation to negotiate bi-lateral trade deals with the US instead of the TPPA (something just announced by the Trump administration). The historical record shows that large asymmetries in market size favour the larger over the smaller partner in bilateral trade agreements. This is due to economies of scale, market dominance, and economic and geopolitical influence derived from market size advantages. The recent track record of bilateral deals between the US and smaller states reinforces this fact. Australia, South Korea, Chile, Colombia and the Central American nations plus Dominican Republic grouped in the CAFTA scheme all have bilateral FTAs with the US. In all instances the majority benefits accrued to US-based companies and industries and the benefits accrued in the partner states were limited to specific export markets (mostly in primary goods), with little flow-on, trickle down or developmental effects in the broader national economies.

So rather than “jump on a plane” to sign a bilateral deal with the US, as one wag put it, smaller states such as New Zealand need to think hard whether the bilateral alternative with the US is more long-term beneficial than a multilateral agreement, especially when it has shown that under a certain type of administration the US is willing to renege on its commitments even if they are multilateral rather than bilateral in nature. With the Trump administration also set to review and replace the tripartite North American Free Trade Agreement with Canada and Mexico (NAFTA), it is clear that honoring commitments and maintaining continuity in trade policy is not, even if just for the short term, on the US agenda.

When one widens the lens on what the Trump administration is doing in terms of its threats to withdraw from various bi-and multinational defense agreements unless the partner states “pay more” for US protection, it becomes clear that the US is not, at least for now, a reliable international partner.

The reason is that the new US attitude to trade is part of a larger phenomenon. The neo-isolationist protectionism embedded in the “America First” approach adopted by the Trump administration has ended, however temporarily, over 50 years of bipartisan consensus in the US political elite on the merits of international engagement. Be it in trade, foreign aid or collective defense, the US policy elite, both public and private, have embraced globalisation as a means of projecting US power, influence and values world-wide. That era has come to end for the time being, and so long as Trump is successful in pursing his “America First” strategy it will continue to be so.

That may or may not make America Great Again but it could well have a negative impact on those who seek mutual benefit by engaging with it. They will be asked to do more, pay more and offer more concessions in order to be granted US favour.

In the absence of an alternative, that is an unenviable position to be in. But if alternatives are available, then the current moment in US politics provides a window of opportunity to countries that have found themselves marginalised by Trump’s policy directives. The re-orientation of TPPA is one such opportunity because, if for no other reason, a US return to the TPPA fold in the post-Trump era will see it with much less leverage than it had up until now. Add to that the possibility of increased benefits via a renegotiated deal with the remaining and possibly new partners, and the downside of the US withdrawal seems acceptable.

From a smaller nation perspective, that is a good thing.