How to Manufacture a Global Food Crisis: Lessons from the Philippines, Mexico, and Africa

Mar 30

When tens of thousands of people staged demonstrations in Mexico last year to protest a 60 percent increase in the price of tortillas, many analysts pointed to biofuel as the culprit. Because of US government subsidies, American farmers were devoting more and more acreage to corn for ethanol than for food, which sparked a steep rise in corn prices. The diversion of corn from tortillas to biofuel was certainly one cause of skyrocketing prices, though speculation on biofuel demand by transnational middlemen may have played a bigger role. However, an intriguing question escaped many observers: how on earth did Mexicans, who live in the land where corn was domesticated, become dependent on US imports in the first place? Eroding Mexican Agriculture   The Mexican food crisis cannot be fully understood without taking into account the fact that in the years preceding the tortilla crisis, the homeland of corn had been converted to a corn-importing economy by “free market” policies promoted by the International Monetary Fund (IMF), the World Bank and Washington. The process began with the early 1980s debt crisis. One of the two largest developing-country debtors, Mexico was forced to beg for money from the Bank and IMF to service its debt to international commercial banks. The quid pro quo for a multibillion-dollar bailout was what a member of the World Bank executive board described as “unprecedented thoroughgoing interventionism” designed to eliminate high tariffs,state regulations and government support institutions, which neoliberal doctrine identified as barriers to economic efficiency.   Interest payments rose from 19 percent of total government expenditures in 1982 to 57 percent in 1988, while capital expenditures dropped from an already low 19.3 percent to 4.4 percent. The contraction of government spending translated into the dismantling of state credit, government-subsidized agricultural inputs, price supports, state marketing boards and extension services. Unilateral liberalization of agricultural trade pushed by the IMF and World Bank also contributed to the destabilization of peasant producers.   This blow to peasant agriculture was followed by an even larger one in 1994, when the North American Free Trade Agreement went into effect. Although NAFTA had a fifteen-year phaseout of tariff protection for agricultural products, including corn, highly subsidized US corn quickly flooded in, reducing prices by half and plunging the corn sector into chronic crisis. Largely as a result of this agreement,...

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Will Capitalism Survive Climate Change?

Mar 30

There is now a solid consensus in the scientific community that if the change in global mean temperature in the 21st century exceeds 2.4 degrees Celsius, changes in the planet's climate will be large-scale, irreversible and disastrous. Moreover, the window of opportunity for action that will make a difference is narrow – that is, the next 10 to 15 years. Throughout the North, however, there is strong resistance to changing the systems of consumption and production that have created the problem in the first place and a preference for "techno-fixes," such as "clean" coal, carbon sequestration and storage, industrial-scale biofuels, and nuclear energy. Globally, transnational corporations and other private actors resist government-imposed measures such as mandatory caps, preferring to use market mechanisms like the buying and selling of "carbon credits," which critics say simply amounts to a licence for corporate polluters to keep on polluting.In the South, there is little willingness on the part of the southern elite to depart from the high-growth, high-consumption model inherited from the North, and a self-interested conviction that the North must first adjust and bear the brunt of adjustment before the South takes any serious step towards limiting its greenhouse gas emissions. Contours of the Challenge In the climate change discussions, the principle of "common but differentiated responsibility" is recognised by all parties, meaning that the global North must shoulder the brunt of the adjustment to the climate crisis since it is the one whose economic trajectory has brought it about. It is also recognised that the global response should not compromise the right to develop of the countries of the global South. The devil, however, is in the details. As Martin Khor of Third World Network has pointed out, the global reduction of 80% in greenhouse gas emissions from 1990 levels by 2050 that many now recognise as necessary, will have to translate into reductions of at least 150-200% on the part of the global North if the two principles – "common but differentiated responsibility" and recognition of the right to development of the countries of the South – are to be followed. But are the governments and people of the North prepared to make such commitments? Psychologically and politically, it is...

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Selected Economic, Political, and Social Trends in Asia in a Global Context

Mar 29

– Rise of China and, to a less extent, India as central event in Asia over the last 20 years. – China’s relation to the United States: China as manufacturer of world and US as key buyer of Chinese products; China has provided credit from its trillion dollar reserves to keep US middle class consumption up; much of US debt is debt incurred from China; estimates that US owes China one trillion dollars; what happens when China calls in its debt so it no longer suffers from falling dollar. – China has also become the driver of growth in Korea, Japan, and Southeast Asia since 2002; Chinese demand is main factor for their recovery from Asian financial crisis; they produce components for China that China then puts together for export to the US and Europe, so that a recession in US will have knock-on effects in China and Southeast Asia. – While China has acquired reputation of being manufacturer of the world, India has built up its strength on software development and providing backroom offices services—that is, providing office services at cut-rate prices for US-based corporations.  However, India’s growth stems more from domestic demand, compared to China’s export-led growth.  Having seen the environmentally and socially destabilizing consequences of China’s growth, there is rising resistance in India in influential circles to following in China’s export-led footsteps. – China’s rise has led to the question of what is happening to the second biggest economic power in the world, meaning Japan.  Japan has only gotten over its 15-years of recession, partly owing to demand from China.  However, its recovery is slowing down, and there is fear in many circles that it has not really recovered from its long stagnation after the real estate and bank crashes of the early 1990’s.  China’s rise has had major geopolitical consequences for Japan.  With its population growth dipping below replacement levels and with an aging population, Japan has increasingly felt threatened by China’s economic rise and military strength, although Japan’s Self Defense forces are among the strongest in the world.  This has led Japan to strengthen its political ties with the United States.  – The US itself has an ambivalent relationship with China.  On the one...

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The Global Financial System in Crisis

Mar 28

Owing to the devastating impact of uncontrolled gyrations and permutations of speculative capital, there were calls for capital controls and a return to strong financial regulation following two of these crises: the Asian financial crisis in 1997 and the dot.com craze of the late 1990s. The first event led to the economic collapse of all the so-called Asian tiger economies that did not impose capital controls, the second to the wiping out of $7 trillion in investor wealth and the US recession of 2001.  I am sure we all still remember how during the Ramos years, some $19.4 billion entered the country between 1994 and 1997 and left in a flash in July and August of 1997, dragging down the peso from 25:1 to 54:1 in the course of the next few months and bringing us to recession in 1998. Nothing came of these demands for capital controls as the global financial elite refused even the weakest regulatory mechanisms that were proposed.  Instead, “self-surveillance” and “self-policing” was the alternative pushed by the private sector, even as it removed the last remaining barriers to capital flows across borders and devised ever more sophisticated financial instruments such as derivatives.  In this connection, just as they said they would be model debtors and pay off all the country’s debt according to the terms of the creditors during the Aquino period, so did our financial authorities dutifully repeat international financial capital’s mantra against the imposition of capital controls during the Ramos presidency and afterwards. What happens when you eliminate or water down state regulation of financial activity is provided by the Wall Street Journal’s summary of a recent report on the subprime crisis by the G7’s Financial Stability Forum: [T]here is plenty of blame to go around for the financial chaos: The US subprime mortgage market was marked by poor underwriting standards and ‘some fraudulent practices.’ Investors didn’t carry out sufficient due diligence when they bought mortgage-backed securities.  Banks and other firms managed their financial risks poorly and failed to disclose to the public the dangers on and off their balance sheets. Credit-rating companies did an inadequate job of evaluating the risk of complex securities.  And the financial institutions compensated their employees in...

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The Economist Debate Series: Freedom and its digital discontents

Mar 27

The first brought us the gem that was central planning; and the second, the wondrous neoliberal economics that has reigned over the last 25 years. Despite opposite locations on the ideological spectrum, both approaches were united at a metaphysical level by the Platonic paradigm that there is one ideal straitjacket into which you can cram all actually existing economies. We all know where central planning and the elimination of the market brought the Soviet Union and eastern Europe. Over the last few decades, we have witnessed how the holy trinity of radical liberalization, deregulation and privatization has increased the numbers of people living in absolute poverty, redistributed income towards the rich and reduced global economic growth per year in the 1980-2000 period by more than half of what it was during the 1960-80 period. Despite claims to the contrary, what we have had under the reign of unfettered market processes is not Schumpeterian creative destruction, but long-term stagnation combined with periodic destabilization. The current financial crisis that may lead to what the former Federal Reserve chairman, Alan Greenspan, describes as possibly the “world’s worst economic crisis since the second world war” provides a cautionary tale of what happens if you eliminate all effective controls on the market. The housing bubble is but the latest of some 100 financial crises that have swiftly followed one another ever since Depression-era capital controls began to be lifted during the Thatcher-Reagan years. Owing to the devastating impact of uncontrolled gyrations and permutations of speculative capital, there were calls for capital controls and a return to strong financial regulation following the Asian financial crisis in 1997 and the dot.com craze of the late 1990s. The first event led to the economic collapse of all the so-called Asian tiger economies that did not impose capital controls, the second to the wiping out of $7 trillion in investor wealth and the US recession of 2001. Instead of heeding these calls, Washington caved in to Wall Street’s insistence on private sector “self-surveillance” and “self policing”. Instead of stronger monitoring and regulation of sophisticated financial instruments such as derivatives,, governments meekly agreed to leave this to market players who were supposed to have access to complex quantitative computer...

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