The Globalist http://www.theglobalist.com Daily online magazine on the global economy, politics and culture Sat, 28 Feb 2015 07:00:36 +0000 en-US hourly 1 Obama: No More Special Treatment for Mr. Modi and India http://www.theglobalist.com/obama-no-more-special-treatment-for-mr-modi-and-india/ http://www.theglobalist.com/obama-no-more-special-treatment-for-mr-modi-and-india/#comments Sat, 28 Feb 2015 07:00:36 +0000 http://www.theglobalist.com/?p=28400 By Stephan Richter

The U.S. finally announces the installation of an Air Quality Monitor in Delhi – as it did in Beijing in 2008.

united-states-india-flagsThe U.S. finally announces the installation of an Air Quality Monitor in Delhi – as it did in Beijing in 2008.

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By Stephan Richter

The U.S. finally announces the installation of an Air Quality Monitor in Delhi – as it did in Beijing in 2008.

united-states-india-flags

One of the biggest successes that the U.S. government has scored in recent decades in the battle over transparency in China was the installation of an air quality monitor on the U.S. Embassy compound in Beijing’s Chaoyang district in 2008. It began publishing readings on the web in 2009. And when developers began releasing smartphone apps displaying the embassy’s data, that only added to the sizzle.

Initially, this move might have been intended as a self-defense measure, to help U.S. embassy staff serving in Beijing figure out when it is safe to venture outside — and when not.

But the apps soon took the world by storm. For anybody truly global-minded, it became cool to install on one’s smartphone. Beyond Beijing, it is now available for other key Chinese cities, where U.S. consulates have monitors installed.

As of 2013, Beijing experienced 60 days (or 16% of the year) at emergency levels of unsafe air pollution — some days so high they were off the safety measurement charts. Other Chinese cities fared even worse.

Contrary to what one would have suspected, establishing this transparency tool has not been seen – as it would have been judged in the past – as an unfriendly act by a hostile capitalist power.
To be sure, for diplomatic reasons, Chinese officials have officially protested that publishing the data is an unlawful interference in the country’s domestic affairs. But policymakers also realize that they do have a real problem on their hands with all that air pollution.

Treat Delhi like Beijing?

For a long time, it was a sensitive diplomatic question whether the United States would endeavor to bring similar focus on air pollution to India. The Obama Administration has just now decided to do so. And that is a good thing, even though the move has been timed obviously to come out at the end of a prolonged U.S.-India “love fest” after Narendra Modi’s election.

After many years of never ending reams of news stories about how bad the air in China’s capital (and other cities) really is, the world has only recently started hearing that air pollution in Indian cities is actually worse — and has been so for some time.

For example, the World Health Organization recently declared the top four most air-polluted cities in the world to be in India. The worst offender in the world is not Beijing after all, but rather India’s capital, New Delhi.

Obscuring India’s smog

Although experts had known this for a while, the world and local media continued to focus on Beijing’s smog. For all the criticism of how the Chinese government has handled or reported the pollution levels, they did admit its existence and did attempt to measure it.

TG Beijing air quality

In astonishing contrast, the people of the world’s largest democracy — India — have been kept in the dark about air pollution by their own government, as they have about so many other matters.

Indian citizens and global travelers alike trusted the India government’s happy public relations campaign about more trees being planted in Delhi and the like.

To keep their own government on its toes and focused on protecting public health, Indians should welcome the U.S. government installing monitors like those in China.

The U.S. State Department and the Environmental Protection Agency have announced that the United States will place air-quality monitors outside embassies in numerous foreign cities, starting with diplomatic posts in India and then moving to Vietnam, Mongolia and other countries.

Will the (new) Indian government welcome that move? Or will Mr. Modi, if the United States were to proceed with this idea, do what the Chinese have done – consider it an unfriendly act?

Of course, in light of the Snowden revelations on NSA activities – one of which was that India was the 5th largest collection source country of the United States’ NSA surveillance – such a monitor will generate suspicion. Some may even suspect the air monitor of being an NSA listening post or cyber weapon.

India’s government needs a daily reminder

After all, India’s government – for all its voluminous size – has shown that it lacks the foresight, analysis and planning capacity to deal with such “invisible” challenges as air pollution.

In order to create a real marker against which to measure progress, it should be most welcome for the U.S. government to treat India the same way it treats China.

Even Chinese leaders are fully aware that this measurement system, painful though it is for them, contains a key metric that they must not just address, but also resolve in order to preserve their own power.

A nation whose people get suffocated is never a pleasant prospect for anyone on the inside. It’s not only a terrible long-term growth strategy, and not just in terms of stunted growth of children and other such effects. It’s also a real problem with regard to keeping the population from getting politically restless.

In China at least, that genie is now out of the bottle. In India, even the awareness of the issue is still only emerging.

Some progress

The current situation is all the more troubling as India, where the manufacturing sector only has a 16% share of GDP (compared to 32% in China), is still trying to expand that part of its economy.

Some positive steps have been taken. In New Delhi, for example, many vehicles have been converted to use CNG fuel since a groundbreaking Supreme Court ruling in 1998.

However, as positive as that sounds, the grim reality is that so far only commercial vehicles have been converted, leaving the private vehicles (a vast majority) to continue burning pollutant-heavy fuel.

Wealthy enough to care?

It is generally considered that a nation can afford to care about the environment when it passes the $5,000 per capita income threshold. At a per capita GDP of only just over $4,000 per year (on a PPP basis), India is still below that level. China, for its part, is at almost $10,000 a year, according to IMF figures.

But regardless of income statistics, India has already reached dangerously high pollution levels from its development. Tens of millions of people living in India’s big cities day in and day out have been played for fools.

As a true friend of India’s people – and a supporter of transparency – the U.S. announcement to install monitors in India should be welcomed by all, even if it means making the government uncomfortable. If the Chinese Communist Party learned to see its value, so can the leaders of the world’s largest democracy.

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“Ruxit” is Real: Russia’s Exit from Europe http://www.theglobalist.com/ruxit-is-real-russias-exit-from-europe/ http://www.theglobalist.com/ruxit-is-real-russias-exit-from-europe/#comments Fri, 27 Feb 2015 07:00:22 +0000 http://www.theglobalist.com/?p=40177 By Josef Janning

Putin’s Russia never really wanted to be of Europe. Now, it doesn't even want to be with Europe.

Credit: World Economic Forum - www.flickr.comPutin’s Russia never really wanted to be of Europe. Now, it doesn't even want to be with Europe.

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By Josef Janning

Putin’s Russia never really wanted to be of Europe. Now, it doesn't even want to be with Europe.

Credit: World Economic Forum - www.flickr.com

Leaving aside a few brief moments in the Russian policy discourse of the 1990s, post-Soviet Russia has always thought of the country’s role as being with Europe, but not of Europe.

Dating from the times of the Helsinki process, which led to the founding of the OSCE, a favored metaphor in Soviet and Russian thinking was the inclusive notion of a “common European house” from Lisbon to Vladivostok.

This space of sovereign states would include Russia as the largest among them – and the United States would be left on the margins or outside.

Turning the page on Russia

That chapter is closing now, as the Russian leadership abandons its own idea of inclusiveness. German Chancellor Angela Merkel used the term at the Davos World Economic Forum this year, but Moscow gave no answer to her invitation to return to the wider European discourse.

Vladimir Putin’s Russia has never really wanted to be of Europe, because the continent is now defined in political terms by the European Union and its rationale, norms and processes.

As former Warsaw Pact countries and the previously Soviet Baltic republics have turned to the West, the EU has expanded east and now shares borders with Russia, Belarus and Ukraine.

With the Ukraine war, Putin’s Russia also seems to have stopped wanting to be with Europe, because it feels its claim to remain a first-rate power has been disrespected and that the absence of a show of force allowed its interests to be overlooked.

In effect, Russia has become the Anti-Europe, organized by geopolitical reasoning and bound by military power, and it seeks just one thing from the West: respect borne out of fear for the harm it could do.

This Russia sees itself as entirely different from the EU in social and political norms, in its notion of a powerful and sovereign state and in its view of its national identity and mission.

Now, Moscow’s quest for status is focused on Washington. In Vladimir Putin’s world, Europe is second-class, troublesome but acquiescent. That some in Washington also look at Europe this way may help to reinforce his belief.

However, the EU is something different: Europeans might have misread the geopolitical significance of its Eastern Partnership scheme in the eyes of the neo-Russians in the Kremlin, but they were not naïve about the transformative impact that could be effected by seemingly technical trade and association agreements.

European soft power

Obviously, Putin fears European soft power, since it is a force to which he has no response. Russia’s lack of attraction is one of its most serious weak spots. Its leverage rests on its state-controlled extracting industries and its military.

The ideology of integration has become a new nationalism, which has as its core mission the resurrection of the Russian space.

On Ukraine, EU leaders have chosen not to follow Putin’s shift from soft power to hard power. In political terms, their sanctions do not have as much effect on Putin’s Russia as they would have on a Russia that was seeking cooperation and trying to build a modern and competitive economy. To Moscow, Europe’s insistence on negotiations to end the fighting in Ukraine makes it look weak – indeed, it has allowed Russia to prevail in its attempt to neutralize Ukraine and prevent its departure to the West.

A veritable stalemate

The EU is not pursuing an expansionist strategy and it will not wrest the country from Russia’s grip, but neither will it close the door on Ukraine or on any of its neighbors – not even on Russia.

In the end, Putin will find that creating integration on Russian terms will have problematic implications.

But for now, the consequences for those in Ukraine who would like to see their country integrated into EU and NATO are tragic. Russia may very well stop the process by way of militant separatism, and moreover, Ukraine’s economy, governance and democracy are too weak to allow it to join the West.

Meanwhile, in its own house on the other side of the Kremlin’s dividing line, the EU will need to consolidate economic and social prosperity for all people under its roof, including the hundreds of thousands of ethnic Russians who must not be left marginalized and alienated in their home countries.

To achieve this, Europe will need to integrate still further; it should rethink defense integration and install more robust processes so that it can maintain a coherent foreign policy position.

Ironically, Vladimir Putin could thus become an external federator of Europe – while his attempt to unite Eurasia could show up the real diversity of the actors within what he imagines as being the Russian space.

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10 Facts: Women in the Workforce: U.S. Versus the Rest http://www.theglobalist.com/10-facts-women-in-the-workforce-u-s-versus-the-rest/ http://www.theglobalist.com/10-facts-women-in-the-workforce-u-s-versus-the-rest/#comments Fri, 27 Feb 2015 01:04:53 +0000 http://www.theglobalist.com/?p=40194 By The Globalist

Are U.S. women still leading OECD nations in workforce participation?

Credit: Government Press Office - www.flickr.comAre U.S. women still leading OECD nations in workforce participation?

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By The Globalist

Are U.S. women still leading OECD nations in workforce participation?

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1. In 1990, the United States ranked near the top in terms of women labor force participation rates in developed nations.

2. Back then, only five nations – Norway, Sweden, Denmark, Canada and Finland – ranked higher.

3. U.S. female labor participation peaked in 1999 at 77%.

4. Since 1999, U.S. female labor participation has decreased for 12 out of the past 14 years, bottoming out at just under 74% in 2014.

5. While the United States struggled to increase the percentage of women active in the workforce, European nations thrived.

6. As of mid-2014, six European nations had female labor participation rates of 85% or higher.

7. The leaders among OECD nations are now Slovenia, Sweden, Portugal, Iceland, Austria and Switzerland.
8. The United States now only falls in the low middle among the OECD nations.

9. Since the end of the last recession in 2009, the U.S. labor force participation rate for women has fallen by two percentage points (from 75.7% in 2009 to 73.8% in mid-2014).

10. However, U.S. women are far more likely than their European counterparts to be employed in full-time work, and are equally likely as men to be considered for managerial positions.

Source: OECD and Why the U.S. has a lower rate of working women than Europe by Dylan Matthews (Washington Post, January 15, 2013), with additional analysis by The Globalist Research Center.

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Women in the Workforce: A Global Perspective http://www.theglobalist.com/women-in-the-workforce-a-global-perspective/ http://www.theglobalist.com/women-in-the-workforce-a-global-perspective/#comments Thu, 26 Feb 2015 16:22:33 +0000 http://www.theglobalist.com/?p=40172 By The Globalist

Seven decades since the end of World War II, do U.S. women still lead in workforce participation rates?

Source:  The U.S. National ArchivesSeven decades since the end of World War II, do U.S. women still lead in workforce participation rates?

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By The Globalist

Seven decades since the end of World War II, do U.S. women still lead in workforce participation rates?

Source:  The U.S. National Archives

The feminist movement of the 1960s led the way for women to increase their presence in almost all occupations in the Western world. Over the subsequent decades, U.S. women had higher labor participation rates than most other developed countries.

We wonder: Seven decades since the end of World War II, is that statement still true?

A. Yes, the United States still leads.
B. Not quite, but it is still near the top.
C. No, it is in the middle of the pack.
D. No, it is near the bottom.

A. Yes, the United States still leads … is not correct.

During World War II, the percentage of women in the United States who worked outside the home increased from about 25% to 36%. For the first time, many women were working in industrial jobs, taking the place of men who had been called into the U.S. military.

By 1970, the U.S. female labor participation rate — the percentage of women between the ages of 25 and 54 who were either employed or actively looking for work — had risen above 50% for the first time, according to OECD data.

Three decades later, in 1999, the labor participation rate peaked at 77%. Remarkably, in 12 of the next 14 years this number would fall — falling to just under 74% by mid-2014.

Most European nations have experienced the opposite trend. They have seen incremental annual increases in the labor participation rates of women. As of mid-2014, six OECD nations — all in Europe — had female labor participation rates of at least 85%. They are Slovenia, Sweden, Portugal, Iceland, Austria and Switzerland.

A key reason for this development is that European nations are far more likely to offer extended paid maternity leave (as well as protections for women to return to their jobs after having children), government subsidized day care and other policies designed to keep women in the workforce.

B. Not quite, but it is still near the top … is not correct.

Of the 34 OECD economies, the 14 countries with the highest female labor participation rates in mid-2014 were all in Europe. In all of these economies — including Europe’s largest, Germany — at least 80% of women were actively involved in the labor force.

Outside of Europe, 15th-ranked Canada has the highest female labor participation rate. Back in 1990, Canada’s female labor participation rate, at 76%, was only slightly higher than the U.S. rate of 74%. But while the U.S. rate is again 74% (after peaking at 79% in 1999), Canada’s female labor participation rate is 82% — eight percentage points higher than in 1990.

The generosity of labor policies (such as paid maternity leave) is only one explanation for the higher female labor participation rates in Europe and Canada. Another explanation is the higher rates of part-time work for women in these countries.

At 82%, the Netherlands has a very high female labor participation rate. But 61% of the Dutch women who were working were employed part-time, according to OECD data for 2012. By comparison, only 18% of U.S. working women are employed part-time.

C. No, it is in the middle of the pack … is correct.

At 74%, the U.S. female labor force participation rate is five percentage points lower than the 28-country average for the European Union (79%). This means that Europe has roughly 35 million more women in their prime working age (25-54 years) in the workforce than the United States.

The U.S. rate is, however, slightly higher than the overall rate for the 34-nation OECD (72%). By this measure, the United States is in the middle of the pack in terms of female labor force participation.

A high rate of participation in the workforce — as well as a high rate of employment — is a key measure of the status of women in society. A key factor in this regard is high female educational attainment, which is over time will help close the pay gap women still experience around the world.

D. No, it is near the bottom … is also correct.

The U.S. labor force participation rate for women in mid-2014 was higher than only six of the 34 advanced economies of the OECD. Only Ireland, Chile, Italy, Korea, Mexico and Turkey ranked lower.

By comparison, the United Kingdom — which is both culturally and economically very similar to the United States — has a female labor participation rate of 80% — six percentage points higher than the U.S. rate.

The level of women’s participation in the workforce is, in part, a reflection of the cultural values attached to women. In Korea (where only 65% of women are in the labor force) and Japan (74%), the traditional role for women has been to stay at home — despite the very high levels of education attainment for women in these countries.

Likewise, predominantly Catholic countries (such as Ireland, Mexico and Italy) have had historically lower rates of female participation in the workforce. At the other end of the scale, former Communist countries such as Slovenia, Estonia and the Czech Republic have had higher rates.

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The Greek Dilemma http://www.theglobalist.com/the-greek-dilemma/ http://www.theglobalist.com/the-greek-dilemma/#comments Thu, 26 Feb 2015 07:00:45 +0000 http://www.theglobalist.com/?p=40165 By Joseph Vann and Valbona Zeneli

The “Big Fix” for Greece and how not to waste a good crisis.

Credit: EU Council Eurozone - www.flickr.comThe “Big Fix” for Greece and how not to waste a good crisis.

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By Joseph Vann and Valbona Zeneli

The “Big Fix” for Greece and how not to waste a good crisis.

Credit: EU Council Eurozone - www.flickr.com

Fortunately for all, the Greek government and the rest of the Eurozone reached an agreement extending the country’s bailout program for four months. This extension will allow all parties to apply clear and critical thinking towards resolving this challenge.

However, four months is an incredibly brief time span. If not managed properly, the extension will prove to be a Pyrrhic victory.

Without this deal, Greece faced the prospects of quickly running out of cash. The country’s finances are getting tighter, with an average of 2 billion euros a week leaving the country.

However, successfully negotiating a restructuring of the bailout package without giving equal and emphatic attention to tackling the country’s structural challenges equates to applying a temporary bandage to a gaping wound.

Breaking promises

The first dilemma facing the government is avoiding the impression that it has reneged on its campaign promises. However, on the positive side of the equation, implementing many of the structural reforms required were central to the current government’s campaign promises.

Tackling corruption, ensuring compliance in tax collection, increasing transparency in government, reducing red tape, simplifying the ease of doing business and implementing many other structural reforms are critical to energizing the Greek economy.

Amazingly, they also represent the agenda items on which the German government – far from being obsessed about “austerity” – is almost perfectly aligned with the Tsipras government.

In the midst of this crisis, it is easy to overlook the fact that the Greek government has a tremendous opportunity within its grasp. Long before the recent campaign, Tsipras, Varoufakis, et al., have rightfully spoken of a pressing need to re-imagine the Greek economic model.

This crisis thus presents the government with an opportunity to implement structural reforms that would be difficult to implement under normal conditions.

Time is of the essence

That the Greek government has recognized the need to implement reforms that are the root cause of many of the country’s problems is a positive sign — but it must do so now.

There is a critical need for a strategy to address the current crisis. Politically, Mr. Tsipras can make a strong case that previous Greek governments are responsible for the present mess. It is because of their errors of omission and commission that Greece’s credit is maxed out. That is not the fault of the EU or its banks.

Over time, the government can deliver on its campaign promises, but only by implementing an overarching strategy. This is Greece’s one and only chance to break the “Iron Triangle” of establishment parties, oligarchic business interests and affiliated media.

With this as a starting point, the crucial task — redirecting sentiments of national pride and bravado towards what Greece needs to accomplish — is critical, but eminently possible.

It stands to reason that Germany’s Finance Minister Wolfgang Schäuble will stand by Tsipras’s side to make sure he succeeds with that reinvention mission. In contrast, what Schäuble is adamantly opposed to is any more business as usual, or sliding back on the reforms that were actually beginning to be implemented.

Mind the basics

The government must decide what it needs to do to fix its structural challenges. Continuing strategic communications will be a critical element of its strategy.

By immediately implementing the needed structural changes to improve good governance and rule of law, the government will start the process of promoting competitiveness, confidence and economic development.

Such measures would also go far in promoting outside investor confidence. As government regulations improve, the business community, investors and entrepreneurs will be able to turn their attention towards making profits instead of navigating through government red tape.

Structural reforms, such as in tax collection, need immediate attention. It doesn’t take an economist to understand that tax evasion deprives the government of the tax revenues required to pay for social programs, pensions and the salaries of civil servants — including those the government has promised to rehire.

Greece’s lack of competitiveness is problematic. It ranks last in Europe. In the European catch-up index, Greece is the EU laggard, being exceeded by all the Central European countries, ranking near the bottom at 27th out of 35 European countries surveyed.

It would be wrong for the government and the people of Greece to view its current dilemma as a result of its sovereign debt. It is Greece’s structural deficiencies that have caused its sovereign debt crisis. Now is not the time to waste a good crisis.

Editors Note: The views presented are those of the authors and do not necessarily represent the views of Department of Defense or its affiliated institutions..

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All Quiet Now, But Can Greece Really Thrive Inside the Euro? http://www.theglobalist.com/all-quiet-now-but-can-greece-really-thrive-inside-the-euro/ http://www.theglobalist.com/all-quiet-now-but-can-greece-really-thrive-inside-the-euro/#comments Wed, 25 Feb 2015 07:00:23 +0000 http://www.theglobalist.com/?p=40159 By George Magnus

Despite a deal being provisionally cut with Greece, a new chapter of European instability is only just starting.

Credit: Theophilos Papadopoulos - www.flickr.comDespite a deal being provisionally cut with Greece, a new chapter of European instability is only just starting.

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By George Magnus

Despite a deal being provisionally cut with Greece, a new chapter of European instability is only just starting.

Credit: Theophilos Papadopoulos - www.flickr.com

After a lot of hubbub, in the end the Greek government submitted a list of policy proposals that elicited a positive response from Brussels, judging them to be “sufficiently comprehensive” to permit the four-month extension of the existing loan arrangements until June.

The responses from the IMF and the ECB were rather more circumspect, indicating strongly that the next four months of negotiations to determine Greece’s relationship with the Eurosystem will be tough and most probably tense.

The IMF noted that the Greek government’s “policy parameters” didn’t go far or weren’t detailed enough, especially about VAT and pension reforms, privatizations and policies to open up closed sectors, including the labor market.

The ECB urged the Greek authorities to act swiftly to “stabilize the payments culture and refrain from any unilateral action to the contrary.” This is believed to refer to matters such as Greek regulations on mortgage foreclosures and to tax and payments arrears in public policy.

What’s the big “deal?”

The “deal” between Greece and its Eurogroup partners has been widely welcomed, and spun according to what people thought would or should happen.

I think that the current “deal” is just Act I in a play with an unpredictable, but very likely bad, ending — where “bad” equals Euro system fragmentation, or Grexit, if you prefer. (Or the even tonier “Grexident.”)

I think it’s fair to say that however people judge the deal and what they think is good or positive about it from Greece’s point of view is really about one thing only: relief that the integrity of the Eurosystem has been preserved.

That is some achievement, given that it looked as though it might not happen. Now, the hope (rather than conviction) prevails that the upcoming negotiations will see a realignment of interests and trust between Greece and its creditors.

Well, who wouldn’t wish for such an outcome?

The problem though, as I see it, is that the economic and social policy agenda on which Syriza scored such a stunning electoral victory is entirely appropriate for Greece, but wholly incompatible with a Eurosystem that I call colloquially, Teutonia. While Teutonia normally refers to the geography of Germany or parts of Northern Europe, I use it to connote a German culture in economics and finance.

In Teutonia, Germany doesn’t always win all the arguments, nor does it or can it impose a policy agenda by diktat. But in the absence of political and fiscal union – of which none of the major countries is in favor – the terms of the (narrow) monetary union will always reflect largely the interests of Germany and a relatively orthodox financial establishment viscerally opposed to the establishment of a genuine transfer, joint liability union.

Can Teutonia be appeased?

That’s a fact I can’t see changing — no matter how mutual trust relations between Greece and Germany might heal after the early year impasse.

And if it doesn’t change, then Syriza’s economic policy agenda will never really get off the ground.

And if it doesn’t, then what next for Syriza and for Greece?

I have no doubt that Teutonia can accommodate a compliant and subservient Greece subject to the will of the latter’s citizens. But Syriza’s election victory was about not being compliant and subservient.

That’s why I’m not confident that the new status quo can hold. At the same time, there is no question that the Eurogroup did cut Greece some slack, but in terms of policy freedom, far less than is sometimes suggested.

In the end, the “deal” came down not so much to economic argument and reasoning, as to the intervention of Angela Merkel and Francois Hollande, who have much bigger fish to fry currently with Russia and the Ukraine – and, closer to home, religious, ethnic and migrant tensions.

The prospect of a Eurozone crisis — with potentially unpredictable knock-on effects following Greek capital controls, default and exit — was a bridge too far at this particular juncture. For the time being, at least, geopolitics trumps all else.

But reflecting on the last four weeks and looking ahead to the next four months, the Eurozone’s narrative of mistrust between north and south has not really been patched up. A new chapter of European instability is only just starting.

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The U.S. Federal Reserve and Shared Prosperity http://www.theglobalist.com/the-u-s-federal-reserve-and-shared-prosperity/ http://www.theglobalist.com/the-u-s-federal-reserve-and-shared-prosperity/#comments Tue, 24 Feb 2015 07:00:53 +0000 http://www.theglobalist.com/?p=40033 By Thomas I. Palley

How do we get a U.S. Fed that works for Main Street, not Wall Street?

Credit: Charley - www.flickr.comHow do we get a U.S. Fed that works for Main Street, not Wall Street?

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By Thomas I. Palley

How do we get a U.S. Fed that works for Main Street, not Wall Street?

Credit: Charley - www.flickr.com

The Federal Reserve is a hugely powerful institution whose policies have an enormous effect throughout the economy. For that reason, it is doubtful the United States can achieve shared prosperity without the policy cooperation of the Fed.

Now, with the economy stronger, there is debate over whether the Federal Reserve should raise interest rates. That conversation is important, but it is also too narrow.

It keeps policy locked into a failed status quo which has seen the Fed consistently take care of Wall Street first, while placing the concerns of Main Street a distant second. Though the Great Recession has triggered some policy shift toward helping ordinary Americans, much more is needed.

Full employment, shared prosperity and the Federal Reserve

Full employment is the bedrock of shared prosperity. Working families need jobs to provide income, and full employment ensures that jobs are available for all.

Full employment also creates an environment of labor scarcity in which workers can bargain for a fair share of productivity, making it essential for decent wages. A big reason for the wage stagnation of the past 30 years is that the U.S. economy has been far away from full employment for most of the time.

Federal Reserve policy is absolutely critical for attainment of full employment. Moreover, the Fed is actually legally mandated to pursue policies that promote maximum employment with price stability.

However, the Fed’s near sole focus has been on price stability (i.e., inflation), on grounds that full employment will take care of itself if inflation is low and stable. Getting the Fed to adopt full employment policies requires getting it to change its policy framework.

Policy challenges and threats

In the meantime, there is an omnipresent danger that the Fed will prematurely tighten monetary policy in the name of preventing inflation, despite the fact that the economy is far away from full employment.

In the United States, we can speak of “full” employment when the unemployment rate is below 5%. That happened in 2007 and the late 1990s, and before that in the early 1970s. This shows how rare full employment has been and how far away it still is.

To make headway, the Fed has to abandon its 2% inflation target. Why? Because the current 2% inflation target shortchanges the maximum employment component of the mandate.

That is because an economy as large as that of the United States is likely to have higher than 2% inflation at full employment, primarily because of differences in conditions across regions and sectors.

In fact, the 2% inflation target represents a cruel trap. As the U.S. unemployment rate comes down, the economy will inevitably bump against the self-imposed 2% inflation ceiling, which likely coincides with an unemployment rate of around 5.5%.

That will give the Fed reason to pull the trigger and raise interest rates, thereby trapping many in unemployment and ensuring continued wage stagnation.

In addition, the Fed must resist calls for pre-emptive interest rate hikes “in order to prevent inflation.” As popular as issuing such calls is with inflation hawks, the reality is economists do not know when inflation will accelerate.

Worse, preemptively raising interest rates increases the likelihood that the economy will stop short of full employment. That will strangle wage growth, entrench income inequality and impose hardship on millions of families.

Instead, the Fed should adopt a “test the waters” approach to policy that allows the economy to edge forward until inflation is seen to be increasing unreasonably. That will enable the economy to reach full employment and wages to grow.

When wages are steadily rising at inflation plus productivity growth that will be one indicator we are approaching full employment.

Do not underestimate unemployment

Another threat is that the Fed may under-estimate the degree of unemployment and labor market slack and then use this under-estimation to justify raising interest rates.

In particular, the Fed may misunderstand the huge numbers of workers who have left the labor force because of lack of job prospects and it may mistakenly think this labor force exit is permanent.

A further danger is that the Fed may mistakenly see the increase in long-term unemployment as permanent and view these workers as unemployable, thereby justifying the view that labor markets are tighter than reported.

The crucial fact to remember is that the long-term unemployment rate has been steadily coming down with job growth. That shows these workers take jobs when they are available.

The sensible thing to do in such a fragile environment is continue with job-friendly monetary policy and see if the unemployment rate continues to come down. That is the logic of a “test the waters” approach.

Furthermore, caution regarding premature rate increases is warranted because interest rate policy is actually a very crude tool that hits the whole economy. Manufacturing is especially vulnerable because of the effect of higher interest rates on the dollar’s exchange rate.

New policy tools and goals

Policymakers need other tools that can finely target particular problem areas (such as asset price bubbles), without inflicting collateral damage on the rest of the economy. It is time for the Federal Reserve to revive the use of margin requirements and introduce new policy tools such as asset based reserve requirements (ABRR).

The Fed should also aim to help finance public infrastructure investments. This would raise growth by relaxing the financing constraint that currently unduly restricts such investment.

One possibility is that this could be done by creating a national infrastructure bank whose bonds the Fed could purchase. Another sensible move would be to set up a new federal agency to securitize state and local government infrastructure bonds. The Fed could then buy those securitized bonds.

Overcoming the Fed’s institutional bias

The Fed suffers from a proclivity to bias against the working family. That bias is reflected in its hard-wired institutional characteristics. Just look at the Fed’s legal set-up: It is significantly influenced by the banking industry, which exposes it to regulatory capture by the banks – the very institutions it is supposed to regulate.

The Fed also has a powerful bully pulpit that enables it to exert enormous influence on the overall national — and indeed global — economic policy conversation. For the last thirty years, the Fed’s bully pulpit has been enlisted to serve a one-sided agenda.

That is why the current debate over future Federal Reserve policy is so crucial. It is a generational moment for re-enlisting the Fed on the side of Main Street and shared prosperity.

Editor’s note: This op-ed is based on The Federal Reserve and Shared Prosperity: Why Working Families Need a Fed that Works for Them, Briefing Paper No. 389, Economic Policy Institute, Washington, DC, February 9, 2015. The views expressed are those of the author and not those of the AFL-CIO.

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India’s Economy: Embedding the Next Steps into the FY 2015-16 Budget http://www.theglobalist.com/indias-economy-embedding-the-next-steps-into-the-fy-2015-16-budget/ http://www.theglobalist.com/indias-economy-embedding-the-next-steps-into-the-fy-2015-16-budget/#comments Mon, 23 Feb 2015 07:00:13 +0000 http://www.theglobalist.com/?p=40081 By Sanjeev S. Ahluwalia

How to shape the economic structures of the world’s second most populous nation.

Credit: World Economic Forum - www.flickr.comHow to shape the economic structures of the world’s second most populous nation.

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By Sanjeev S. Ahluwalia

How to shape the economic structures of the world’s second most populous nation.

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The annual ritual of the government’s budget, due on February 28, with allocations of money in billions is just gobbledygook for the average citizen. What must Finance Minister Arun Jaitley, India’s second most powerful politician, do to get the overall message right?

A budget theme of “open economy, markets and poverty reduction.” fits nicely with the “growth” expectations unleashed by Prime Minister Modi. Also, these are the three legs for equitable growth.

“Open Economy” stance

Since 1991, an “Open Economy” policy stance has been consistently followed in external trade. The problem is, India has not benefited as much as our neighbors in East Asia. The fault is clearly our own.

Our government has not seized opportunities overseas which could be dovetailed with domestic comparative advantage to make the economy part of global value chains. This becomes vital now if jobs are to be added in India.

The real issue is what we must do next to “open” the economy to both domestic and international competition.

Four steps are suggested:

1. Linking markets physically by a first rate “infrastructure grid” – ports, roads, rail and electricity are key to creating a seamless national market.

2. A digitized “tax grid” that links national, state and local level tax systems to enhance revenues; the reduction of tax evasion and the reduction of the aggregate tax burden by avoiding “the pancaking of multiple autarchic taxes.” The ongoing Goods and Services Tax (GST) initiative barely scratches the surface.

3. Aggressive privatization of state-owned enterprises, including in arms and ammunition, as Modi has just announced. This can provide the required business momentum for competitiveness, assist in reaching fiscal deficit targets and benefit consumers.

4. Opening of hitherto closed domestic markets in land, legal and media services to foreign investment, except where considerations of national security exist.

The Finance Minister could signal a second wave of liberalization and reform to follow up on the 1991 wave – focusing on supporting Indian business to reap the benefits of an open economy internationally.

Living by market logic

The BJP has always enjoyed the trust of business. Curiously, the party’s commitment to expand markets and competition is not deeply ingrained enough.

Instead, there is a lingering fondness for using and growing the already vast powers of the state to bypass markets and to advance “fast-track” development in a top-down “Developmental State” mode.

Financing renewable energy and urban development

Mr. Jaitley must point out that renewable energy development, while a flagship project, is hampered by the disincentive of subsidized conventional energy supply.

Allowing market prices to prevail for the retail energy supply is the first step to making renewable energy financeable.

Similarly, realism on urbanization agendas is urgently needed. For orderly urbanization, the funds must be found within urban areas by rationalizing property and land tax and raising revenues by leasing government land areas for development to private developers.

Using national tax resources for urbanization is a poor use of scarce resources. Cities in India, which on average are 50% richer than rural India, must finance themselves through user charges, local taxes and monetization of local government resources. There can be no free lunch for a city.

Ending poverty by creating jobs

The international consensus on poverty reduction is that strategies that allocate more resources for human development, livelihoods and private sector employment work best.

India has lagged in enhancing budgetary allocations to education and health (including water and sanitation), as compared to any other growth-oriented sectors of the economy.

If this logic is followed, the small and medium scale manufacturing sector, rather than mega projects, should be the focus for jobs and poverty reduction.

We must avoid the trap of subverting the “growth” agenda into glitzy but sub-optimal “action” points.

To grow jobs for the poor, it is the small things that count, like removing municipal and police harassment of street vendors, simplifying tax assessment processes and “problem solving” by getting local and state governments in growth mission mode.

India’s economy consists of 10% of the workforce in the “large, formal” sector and 90% in the informal sector. The key dialectic of India is this: The lot of employees in India’s informal sector can only be improved by “facilitating” employers to grow their businesses.

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India and Israel: A Demonstrative Love Affair http://www.theglobalist.com/india-and-israel-a-demonstrative-love-affair/ http://www.theglobalist.com/india-and-israel-a-demonstrative-love-affair/#comments Sun, 22 Feb 2015 15:55:44 +0000 http://www.theglobalist.com/?p=40095 By Ronald Meinardus

India and Israel have a budding relationship based on security and foreign policy concerns.

Credit: Sanyam Bahga - www.flickr.comIndia and Israel have a budding relationship based on security and foreign policy concerns.

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By Ronald Meinardus

India and Israel have a budding relationship based on security and foreign policy concerns.

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In his nearly one year in office, India’s Prime Minister, Narendra Modi, has moved very methodically about setting new priorities in foreign affairs. That move surprised many observers who had anticipated that Modi would mostly focus on the domestic economy.

The rapprochement with the United States, celebrated during the recent visit of President Obama in New Delhi, was a highlight, as was the improvement in relations with Sri Lanka.

Buddying up with Israel

Now, India’s new government is executing a demonstrative closing of ranks with Israel. Israel’s Defense Minister, Moshe Ya’alon, just became the first holder of that office to visit India since the inception of diplomatic relations more than two decades ago.

Both sides spoke of it as a historic event. The significance of the visit fits in neatly with Narendra Modi’s broadbased efforts to readjust India’s foreign policy priorities in an evolving international environment. India is in the market for more defense goods and Israel is an important supplier.

The South Indian metropolis of Bengaluru was the first stop for Ya’alon and his entourage, which consisted of numerous Israeli representatives of companies involved in weapons manufacturing. The visitors attended Aero India, the most important arms show in South Asia –- and a marketplace for gigantic deals.

As was to be expected, the keenest buyers were the hosts themselves. India’s government wants to modernize the country’s armed forces and has earmarked no less than $150 billion for new fighter jets, anti-tank missiles, submarines, helicopters and other hardware.

Israel’s expansive and highly successful arms industry would like to secure a major piece of that cake. Chances for that are good. They have become even better with Narendra Modi in power, rightly termed the most pro-Israel prime minister in Indian history.

The end of Russian dominance

Traditionally, it has been Russia – and before that, the Soviet Union – that served as the biggest supplier of military equipment to the Indians. But the days of Russian domination are coming to an end.

Indian officials complain the Russians are not sharing technological know-how. The Israelis are seen as far more generous when it comes to military technology transfer. India is now the largest buyer of military hardware “Made in Israel.” At the same time, Israel is India’s largest customer after Russia.

Unlike its predecessor, the Modi government has given up any effort to conceal the massive defense cooperation with Israel. “We used to have our defense relationship behind the scene,” but they no longer need to do this, Moshe Ya’alon, Israel’s defense minister, said in a talk at a political think tank in New Delhi.

This novel transparency in a highly sensitive policy field goes hand in hand with a broad-based upgrading of bilateral relations.

When Narendra Modi met Israel’s Prime Minister Benjamin Netanyahu on the sidelines of the United Nations General Assembly last September, the two agreed to expand their relations. During that meeting, Netanyahu told Modi “the sky is the limit” for their cooperation.

Only a few weeks later, India’s Home Minister, Rajnath Singh, visited Israel to discuss cooperation in the fight against terrorism and other security issues. India is particularly keen to learn about Israel’s cyber-defense systems as it considers Islamist propaganda in the Internet a major security threat.

Delhi is concerned that Islamist groups are out to radicalize members of the 180 million people strong Muslim minority in India or recruit Indian Muslims for “holy war” in the Middle East.

India and Israel have also expanded their cooperation in other fields, such as agriculture and commerce. The two countries have even embarked on negotiations for a bilateral Free Trade Agreement.

However, all this is of secondary importance. The military relationship is clearly the dominant factor. The new India-Israel dynamic is driven by similar perspectives of external threats – and common enemies.

Fighting a common foe

For the Israelis, the Arab predominantly Muslim states are the archenemies with whom they have fought numerous wars. For the Indians, the Islamic Republic of Pakistan falls into the same category of inimical neighbor.

Little wonder, then, that Israel’s Defense Minister went out of his way to stress that his country’s weapon systems fit the Indian requirements.

Security and foreign policy considerations are the main driving force of the Indian-Israeli love affair, which both governments are now demonstratively sharing within the public eye.

Domestic politics also plays a crucial role. “The previous Congress-led government kept ties with Israel quiet, partly over concerns it would antagonize Muslim voters the party relied on for support,” explain NC Bipindra and Nataliee Obiko Pearson in a Bloomberg report.

Narendra Modi and his Hindu Nationalist BJP do not need to take into account such domestic considerations. India’s Muslims have never been — and probably never will be — a strategic target group of their electoral campaigns.

Modi has proven on more than one occasion that he is in the position to win elections without considering the Muslim minority. This is good news for Israel.

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The Euro Beyond Greece: Getting Larger, Not Smaller http://www.theglobalist.com/the-euro-beyond-greece-getting-larger-not-smaller/ http://www.theglobalist.com/the-euro-beyond-greece-getting-larger-not-smaller/#comments Fri, 20 Feb 2015 16:46:13 +0000 http://www.theglobalist.com/?p=40070 By John Stevens

Danes, Swiss and British may ultimately join the euro.

Credit: Quinn Dombrowski - www.flickr.comDanes, Swiss and British may ultimately join the euro.

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By John Stevens

Danes, Swiss and British may ultimately join the euro.

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Everyone is looking at Greece, but that is not the real story for the future of the euro. The more important drama centers on Denmark. In the longer term, the Danes – who currently fight hard to preserve the krone/euro peg — have no alternative but to join the euro.

And this has important implications for two other persistent non-members of the single currency: Switzerland and the UK.

The Greek government may fail to square its heated rhetoric with the circle of cold reality that encompasses it, bring down its banking system and default upon its debts. But even then, the euro would remain the country’s de facto currency.

In such a crisis, the heterodox coalition led by far-left Syriza could not continue, precipitating new elections with new political groupings.

Greece is in the midst of a revolution to transform itself into a serious modern European country for which membership of the euro, and the concomitant exorbitant accumulation of debt, are merely the stage and backdrop, not the play itself.

It’s the exchange rate, stupid!

This would be a short-term disaster for the Greeks. But it would not derail reform efforts in other struggling peripheral euro members.

Indeed, the risks of “contagion,” if such exist, would be greater were Alexis Tsipras, the Greek prime minister, to win concrete rather than cosmetic concessions from his partners.

The control of debt was and is a vital part of the euro’s construction. But its fundamental raison d’ètre was, and is, the simple truth that in today’s world of freely flowing capital, which operates on a scale far exceeding actual commercial transactions, sharp exchange rate fluctuations are a serious disincentive to trade.

A true single market in the European Union must eventually have a single currency. If the exchange rate mechanism had worked generally, it would probably have been impossible to create the euro in 1999. The ERM did work for the Danes, as they had successfully maintained a peg with the D-mark for almost a generation.

Denmark’s fight

Now, the Danish National Bank is fighting to maintain the peg in what is left of the ERM, using euro intervention purchases, negative interest rates and the freezing of bill and bond auctions. But the end of this story is clear. The Danes will eventually have to join the single currency de jure, not just de facto.

The Danish crisis was triggered by last month’s decision by the Swiss National Bank to drop its peg against the euro. This exceptionally disruptive episode shows enormous uncertainty in Switzerland as to how to deal with the EU, and most specifically with the euro area.

It followed the contradictory outcomes of Swiss referendums on European rules on free movement of labor and on the composition of the nation’s foreign exchange reserves.

The Swiss franc has risen sharply against the euro, making a severe and sustained recession in the country unavoidable. This has implications, too, for the UK, with its chronic trade deficit, still inside the EU but contemplating leaving for some kind of Swiss-style detachment.

British monetary independence is increasingly illusory and is a major barrier to the essential export- and productivity-oriented rebalancing of the UK economy.

The Danes are paying a very high price in distorting their monetary policy so they can use a different colored euro banknote.

But further in the future, the Swiss and even the British will face comparable stresses dragging them towards the only sure solution for seeing off speculators and securing the stability they need: abolishing their respective exchange rates and joining the euro.

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How Grexit Could Happen: Referendum or No Referendum? http://www.theglobalist.com/how-grexit-could-happen-referendum-or-no-referendum/ http://www.theglobalist.com/how-grexit-could-happen-referendum-or-no-referendum/#comments Fri, 20 Feb 2015 07:00:59 +0000 http://www.theglobalist.com/?p=40041 By Christian Schulz

How do you exit the euro? It has never been done before.

Credit: Theophilos Papadopoulos- www.flickr.comHow do you exit the euro? It has never been done before.

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By Christian Schulz

How do you exit the euro? It has never been done before.

Credit: Theophilos Papadopoulos- www.flickr.com

In theory, a Greek euro exit could happen by “stealth.”

As the government runs out of money to pay its day-to-day bills, wages and salaries, it may decide to issue IOUs. To persuade people to accept them instead of euros, the government would have to give them a value by, for example, accepting them to settle tax bills.

That would effectively make them a parallel legal tender and thus the nucleus of a new currency: “drachmas.”

However, Grexit by stealth is unlikely. A euro exit would be an extremely important political decision. There are two scenarios for this.

Scenario 1: A simple vote in parliament

The Tsipras government rejects the Eurozone’s offer for help. After a vote in parliament, where Syriza and ANEL have a comfortable majority of 162 to 138, Mr. Tsipras orders severe capital controls and tells the Greek central bank to print drachmas to fund Syriza’s pre-election promises.

While the country’s banking system is closed, Greece would convert deposits and loans into drachmas and stamp euro notes. After a few days, banks would re-open.

This option has a legitimacy problem, however. Euro exit was not part of Mr. Tsipras’s pre-election promises and polls give him no mandate for it.

Some of the Syriza parliamentarians might not follow Mr. Tsipras in parliament. Instead, they might support the pro-European opposition of the New Democracy, Pasok and Potami parties in a constructive vote of no-confidence.

Such a move could result in removing the Tsipras administration and installing a new pro-European government of national unity. Mr. Tsipras may not survive a unilateral attempt to take Greece out of the euro politically.

Scenario 2: Referendum

Under this scenario, Mr. Tsipras would call a referendum over euro membership as quickly as possible. With more than 80% of Greeks supporting Mr. Tsipras’s demands and a similar share supporting euro membership, one side would have to give.

A referendum might be a clean way to decide. Greece has not held a referendum in 40 years, but parliament could call one with a simple majority and hold it within 30 days.

However, by the time the referendum is actually held, all euros might have left Greece already. To prevent that, severe capital controls would need to be imposed. The entire economy would be running on empty or, effectively, barter trade during that period.

That would give voters a taste of what is to come. It may potentially help to persuade Greece to stay. In addition, a rational expectation is that the Eurozone will offer just enough face-saving compromises to sway the referendum.

However, we cannot exclude the risk that the disappointment in Greece over the perceived lack of flexibility prompts Greeks to take the risk of plunging into the unchartered waters of euro exit.

Once the Grexit decision has been taken, Greece would need to come through the inevitable collapse of its financial system and restore it as quickly as possible.

Ahead of the forced conversion, capital flight would intensify. The reported decline in Greek deposits by €21 billion since the beginning of December would just be the beginning, if Grexit were to become an even bigger threat.

Closing the banks

The Greek banking system would have to be closed down for some time until deposits and loans are redenominated as drachmas. Domestic euro bank notes might be stamped “drachma,” Greek euro coins may become drachma coins. It would probably take months to print and coin the new currency.

The forced conversion is likely to bankrupt many Greek companies and banks due to an asset-liability mismatch, i.e., those with large domestic assets but external loans.

Normal bankruptcy law would apply to resolve most cases and leave creditors with significant losses. Some of the collateral, such as buildings and machines, may be sold to satisfy the creditors. This might erode Greece’s productive capital further.

As virtually all government debt is also under foreign law, the government would have to declare bankruptcy and would be unable to help companies and banks with their euro liabilities.

A major risk could be long-lasting legal proceedings, making it difficult to find buyers for companies as these businesses might face future legal challenges.

Uncertainty on the horizon

The government itself might face years of legal uncertainty, which would weigh heavily on prospects for a return to capital markets, as the example of Argentina shows.

Even if the financial system is managed as well as possible under the circumstances, the cash drought and capital controls would likely set off a sharp recession in Greece. GDP may decline by another 5-10%.

The economy might be particularly severely hit if Grexit and the economic chaos coincide with the beginning of the summer holiday season, which would probably lead to large numbers of cancellations from tourists.

A major pitfall for a “smooth” Greek euro exit could be that it also entails forced exit from the EU and thus the world’s largest internal market.

In that case, Greece would also forgo the EU cohesion and rural development funds, which would amount to a loss of €20bn (equal to on average 1% of GDP per year) in 2014-20 period.

The EU may find ways to keep Greece in, for instance by negotiating re-accession to the EU after a “logical second” during euro exit.

However, the process might be tricky, since it involves not just the Eurozone, but the EU as a whole. Some countries, such as the UK, may exploit the opportunity to further their own agendas. Grexit could open the Pandora’s Box of treaty renegotiation.

Read Part II: Greece’s Future After Grexit

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10 Facts on Modern Slavery in Mexico and Haiti http://www.theglobalist.com/10-facts-on-modern-slavery-in-mexico-and-haiti/ http://www.theglobalist.com/10-facts-on-modern-slavery-in-mexico-and-haiti/#comments Fri, 20 Feb 2015 07:00:56 +0000 http://www.theglobalist.com/?p=39655 By The Globalist

One large country and one small country both struggle with modern slavery.

Credit: Alex Oxborough - www.flickr.comOne large country and one small country both struggle with modern slavery.

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By The Globalist

One large country and one small country both struggle with modern slavery.

Credit: Alex Oxborough - www.flickr.com

1. In the Americas, Mexico has a larger population of victims of modern slavery than any other nation in that region.

2. This figure is according to the Walk Free Foundation’s 2014 Global Slavery Index, which defines modern slavery as any practice that traps people in modern servitude, including human trafficking and forced labor.

3. Mexico’s victims mostly come from other, poorer nations in Central and South America.

4. As much as 70% of the incidence of modern slavery in Mexico is related to criminal cartels that often operate with the complicity of local law enforcement.

5. These groups frequently kidnap women and girls and force them to work as prostitutes or as domestic servants.

6. At 267,000, the number of Mexican slaves represents just about 0.2% of the country’s 122 million people.

7. However, Haiti – which famously gained its independence through a massive slave revolt beginning in 1791 – has a modern slave population that, at 238,000, is almost as large in number as Mexico’s.

8. This near-equivalence to Mexico’s enslaved population is despite Haiti having only 10 million people and being the poorest country in the Western Hemisphere

9. In fact, the prevalence of modern slavery in Haiti — affecting 2.3% of the population — is about ten times higher than in Mexico.

10. Haiti’s extreme poverty leads many families to send their children to work as domestic servants in other households, where they are subject to physical abuse and sexual exploitation.

Sources: Walk Free Foundation with additional analysis by The Globalist Research Center.

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Greece’s Future After Grexit: Another Argentina? Or Mimicking the UK? http://www.theglobalist.com/greeces-future-after-grexit-another-argentina-or-mimicking-the-uk/ http://www.theglobalist.com/greeces-future-after-grexit-another-argentina-or-mimicking-the-uk/#comments Fri, 20 Feb 2015 07:00:26 +0000 http://www.theglobalist.com/?p=40044 By Christian Schulz

Euroskeptics have long provided a positive story of Greece after euro exit. Is it for real?

Credit: Steve Jurvetson - www.flickr.comEuroskeptics have long provided a positive story of Greece after euro exit. Is it for real?

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By Christian Schulz

Euroskeptics have long provided a positive story of Greece after euro exit. Is it for real?

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Once the immediate shock of Grexit is digested and the financial system restored, Greece will be faced with the challenge of rebuilding trust in its economy and financial system.

Depending on the choices made, Greece could hypothetically rebound like the UK did after it left the EU’s Exchange Rate Mechanism (ERM) in 1992, and grow like any low-income EU country thereafter.

But Greece could also sink in an ever-accelerating inflationary spiral – as happened in Venezuela or Argentina – losing population and political stability along the way.

It is too early to tell which scenario would play out, but there is a much bigger risk of an Argentina-type result, as opposed to a benign situation of tough reforms to restore credibility.

UK scenario: Government restores market access, enjoys competitiveness boost

Euroskeptics have long provided a positive story of Greece after euro exit. In their view, a devalued currency – many forecast an initial drop by at least 50% – and much reduced public and private sector debt after a general default would put Greece in a good starting position for a dynamic recovery.

An independent central bank would quickly restore credibility, if it avoided the risk of an ever-continuing inflationary spiral. Good macro and fiscal policies would, over time, restore market access for funding and attract international investment.

Tourism: Tourism in particular might benefit from increased cost competitiveness vis-à-vis Eurozone rivals, such as Spain or Italy. The sector could attract strong inward investment from foreigners and Greeks returning capital from abroad.

Manufacturing: Greece might attract the manufacturing bases of foreign companies, if it managed to stay in the EU. As imports become much more expensive, they might soon be substituted with domestically produced alternatives, broadening the manufacturing base and boosting employment.

Interest savings to fuel productivity: As Greece could save the 4% of GDP it is currently spending on interest on its public debt, it could redirect the money into public investment and education, building the foundations for stronger productivity growth.

Inflation: In the first years, high legacy unemployment and thus spare capacity would prevent inflation and, thus, a fast erosion of the newly competitive position.

Structural funds: The sharp drop in measured wealth would qualify the country for more EU structural funds. However, there are major differences between the UK in 1992 and Greece in 2015.

The UK was at the peak of macroeconomic flexibility after years of Thatcher reforms and its ERM exit came before the reform reversals started. Greece, by contrast, has adopted some reforms but remains far away from the kind of flexibility necessary to enjoy the full benefits of a weaker currency.

For instance, inflation is likely to kick in with much higher unemployment rates, in particular if Syriza strengthens Greece’s orthodox labor unions in collective bargaining and if it raises minimum wages.

In addition to Syriza making the Greek economy less flexible, being excluded from financial markets would mean years of austerity as Greece could not borrow. That would lead to a different, far less benign scenario. 


Argentina scenario: Populism continuously erodes economic foundations

The devaluation of Greece’s new currency, for all its potential positive impacts on cost competitiveness, would have a devastating effect on the living standards of Greece’s poor and middle classes, who would be faced with massive inflation.

Wealthier households have probably already parked and protected their money abroad and could benefit from the devaluation by repatriating part of their funds to buy up assets on the cheap.

However, the less well-off have little to park and repatriate. Instead, their drachma incomes would be insufficient to pay for imported food and energy.

For example, Greek food imports account for 12% of total imports, compared to only 7% in Germany. Much of that could probably be substituted with domestic produce, but that might not alleviate price pressures much as Greek farmers would prefer to sell their produce abroad at higher prices, too.

To alleviate the pain, the government might be tempted to try to restore political capital by using its newfound monetary independence to print the money it needs for a lavish social assistance program and public sector job creation. The central bank would lend directly to the government, thus creating permanent inflation.

Price controls for food and other goods may artificially contain official inflation rates, but may outsource the problem to the black market. Greece’s inflation would likely remain in double-digit territory, while the government would try to ensure its survival by blaming the rich for the failures and for keeping their money abroad.

Many in Syriza have such leanings, not least the party’s chief economist, John Milios, who advocates the monetization of government debt in the Eurozone as a whole.

This is the Argentina or Venezuela scenario. However, those countries can rely on their natural resources to bring in hard currency.

No obvious solutions

Greece, in contrast, would have to rely on tourism, which requires political stability. Restoring market access with Syriza leadership and policies would be extremely difficult, but would provide another convenient scapegoat for a populist government in Athens: international investors who do not lend to the country.

The structural weaknesses of the Greek economy, especially the labor market and product market rigidities and the stranglehold of vested interests over policy making would not go away with the euro.

If nothing changes, Greece would very quickly become uncompetitive again and have to devalue once more.

Successive devaluations would reduce the incentive for foreign and domestic investors to invest. This would lead to chronic underinvestment in the economy, making it more difficult for Greece to close the income gap with its European neighbors. Whether tourism can thrive in an environment of widespread poverty for large parts of the population is another open question.

Staying in the EU, while it keeps open access to the biggest internal market in the world and secures transfer payments, could also prove a challenge. Greeks might vote with their feet.

If the future government failed to restore economic prosperity, the EU’s free movement of labor could swell the ranks of Greek émigrés, further undermining the long-term potential of the economy.

Political stability at risk

It is difficult to predict how Greek politics would evolve in the longer run after a Grexit. In Argentina, left wing populists managed to hold on to power despite nearly permanent economic crisis by doing enough to pacify unrest.

In Greece, the pro-European movement would likely be much stronger. It would probably soon win elections and improve policies. But it would still take years to get into a position of seeking re-admission to the Eurozone.

Read Part I: How Grexit Could Happen

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9 Facts on Modern Slavery in Nigeria http://www.theglobalist.com/9-facts-on-modern-slavery-in-nigeria-2/ http://www.theglobalist.com/9-facts-on-modern-slavery-in-nigeria-2/#comments Thu, 19 Feb 2015 07:00:13 +0000 http://www.theglobalist.com/?p=39650 By The Globalist

The Boko Haram insurgency is worsening an already-grave problem facing Nigeria.

Credit: Michael Fleshman - www.flickr.comThe Boko Haram insurgency is worsening an already-grave problem facing Nigeria.

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By The Globalist

The Boko Haram insurgency is worsening an already-grave problem facing Nigeria.

Credit: Michael Fleshman - www.flickr.com

1. Nigeria is not just the most populous nation in Sub-Saharan Africa. It also has the continent’s largest number of people living in conditions of modern slavery.

2. This figure is according to the Walk Free Foundation’s 2014 Global Slavery Index, which defines modern slavery as any practice that traps people in modern servitude, including human trafficking and forced labor.

3. Examples include women tricked into migrating for non-existent jobs (who are then forced to work in brothels or enter into forced marriages), household workers who are promised paid work (but are then forced to work without wages and often without legal immigration status) and others.

4. This number also include children who are forced to work as street vendors or beggars and boys who are forced to work in mines, stone quarries and domestic service.

5. The definition additionally covers children who are forced to fight for military groups. In Nigeria, increasingly frequent reports have suggested that the northern insurgency is incorporating child soldiers more heavily.

6. In April 2014, after the Boko Haram jihadist insurgent group abducted more than 200 girls in northern Nigeria, leader Abubakar Shekau threatened to sell the girls into slavery. Their fate remains uncertain.

7. Many girls are trafficked out of Nigeria, with or without the northern insurgency. The European Union has estimated that 60% of all sex workers in Italy and Belgium are Nigerian women.

8. Nigeria’s total of 834,000 people accounts for about 15% of the 6.4 million people living in modern slavery in Africa.

9. Africa as a whole accounts for about 17% of all the people trapped in modern slavery today.

Sources: Walk Free Foundation with additional analysis by The Globalist Research Center.

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Germany’s Position on Greece: A Reality Check http://www.theglobalist.com/germanys-position-on-greece-a-reality-check/ http://www.theglobalist.com/germanys-position-on-greece-a-reality-check/#comments Wed, 18 Feb 2015 20:39:51 +0000 http://www.theglobalist.com/?p=40019 By Stephan Richter

It’s not about debt forgiveness now, but what Greece must do to reshape itself.

Credit: European Council<br />
 - www.flickr.comIt’s not about debt forgiveness now, but what Greece must do to reshape itself.

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By Stephan Richter

It’s not about debt forgiveness now, but what Greece must do to reshape itself.

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 - www.flickr.com

Many U.S.-based analysts, from Paul Krugman on the left to Chris Whalen on the right, claim that the biggest part of Europe’s current Greece problem is German intransigence. In particular, they claim that German politicians haven’t come clean with their voters on the issue of Greek debt.

In assessing the German position on Greece, one must distinguish between what the Germans say and what their actual long-term strategy is.

For starters, few German voters seriously expect that Greece will ultimately pay back the debt. But acknowledging that fact now publicly will do very little to achieve the ultimate goal – to get Greece onto a reform path.

Playing the long game

Most German politicians are also realistic enough to understand that Greece’s current payments on that debt, already quite minimal, could be stretched out further.

And the Germans, as well as many other partners in the Eurozone, are quite prepared to reduce Greece’s primary budget surplus requirement. With one proviso – that the Greek government implement serious economic reforms at home.

No steps other nations can take make sense unless the Greek government focuses resolutely on what it can do to reshape the country’s economic structures. That is the decisive step to ensure that the country has a better economic future.

In contrast, all the attention given to the debt issue in the current global debate at best obscures that question.

Before the elections, Syriza itself claimed that the Samaras government had undertaken only a half-hearted reform effort. However, since being elected, Syriza has peddled back on many of the few tangible structural reform efforts that the previous government did undertake.

Past experience matters

It is important in this context to recall the late 1990s debate about Greece joining the Eurozone. Membership brought Greece the (temporary) benefit of vastly reduced interest rates. These lower expenses on public bonds were supposed to be used smartly for strategic investments in Greece’s economy.

While the first part of that equation materialized, the second half did not. The Greek inclination to lay the blame for that on Germany’s position on the debt issue begs disbelief.

In real life, the Germans and many other partners in the Eurozone are quite prepared to reduce Greece’s primary surplus requirement – if the Greek government focuses on economic reforms at home.

The American critics of the German position on Greece also like to refer to the Germans performing a “morality play” – in the sense of teaching the Greeks not to run up large debts (which they supposedly must now pay for, at
least “morally,” since it’s hard to believe they will actually do so).

Well, if there is a morality play being performed by the Germans, it isn’t about the vicissitudes of accumulating debt. Germans realize that issuing loans to Greece in the 2000s was a financially stupid decision on the part of their banks – a mistake for which the German taxpayer will end up paying the price.

Morality of another kind

The real morality play is about encouraging the radical Greek government to have the courage of its own convictions. The German finance minister, a conservative politician, and other leaders of his CDU party are cheering on the Greek government to execute the reforms it promised.

As the Germans see it, this means going up against Greece’s own freeloading oligarchs as well as other measures to strengthen Greece’s self-financing capacities (including collecting the VAT, 60% of which currently goes uncollected).

That is pretty much the only way in which Greece, with no path to financial markets, can make meaningful progress at the present juncture.

What this shows is that Greece‘s Syriza government and the German one are actually quite close when it comes to the deep structural reforms that, according to Syriza’s own pronouncements, are required in the Greek economy.

The struggle within Syriza

The problem is that Syriza has two camps, which are at odds with each other. One is focused on modernizing the Greek economy. That is something which the Germans, with their long-time penchant for focusing on a solid macroeconomic framework, would wholeheartedly subscribe to.

Syriza’s other camp, though, is completely at odds with that policy. It is keen on essentially keeping things the way they are, mainly a heavy reliance on creating jobs in the public sector, which simply is not a sensible economic policy. That camp is deemed to be the far stronger camp.

It is only prudent negotiating on the part of the German government not to come up with premature concessions while that battle is being fought out in Athens (within Syriza).

From the German perspective, the existence of the vast Greek debt at this stage has one primary purpose – to be used as a tool to help the reformers in Greece reform their country.

After all, the clear pattern of the past, including after Greece’s joining the Eurozone in 2001, is that the country’s leaders always “book” the benefits they obtain from others, but then shy away from actually doing the promised reforms.

Undertaking the reforms is first and foremost in Greece’s own interest. Blaming the Germans may be politically expedient to deflect some pain associated with needed reforms. But pretending that all ills go back to German roots means that Greece is not serious about reforming itself.

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Where Is David Cameron? http://www.theglobalist.com/where-is-david-cameron/ http://www.theglobalist.com/where-is-david-cameron/#comments Tue, 17 Feb 2015 17:29:53 +0000 http://www.theglobalist.com/?p=39983 By Denis MacShane

Exploring Britain’s disappearance as a geopolitical player.

Credit: Kancelaria Prezesa<br />
 - www.flickr.comExploring Britain’s disappearance as a geopolitical player.

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By Denis MacShane

Exploring Britain’s disappearance as a geopolitical player.

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 - www.flickr.com

“Where is David Cameron?” asks Germany’s influential Frankfurter Allgemeine Zeitung (FAZ). The German paper is leading a chorus of cruel comments about how the British prime minister “shines by his absence on the international stage.” That’s how Le Figaro, the center-right paper in France, ungallantly headlined a report on Britain’s disappearance as a geopolitical player.

“‘The British prime minister is rarely absent when cameras are around. That’s why it is all the more striking that European foreign policy is taking shape without him. In the diplomatic struggle with Moscow, Berlin and Paris lead for Europe, while Washington listens carefully from across the Atlantic.”

But the government in London that was once the mentor for Eastern Europe can “hardly be seen or heard,” continued the FAZ correspondent in London.

Left on the sidelines

In Le Monde, the paper’s editorial director, Sylvie Kauffmann, says the reason for David Cameron’s absence from high-level European diplomacy is that, “Great Britain has been left on the sidelines because of its threat of Brexit — Britain exiting the European Union. Mrs. Merkel is managing the Russia-Ukraine conflict principally as a European issue. In that context, to have to rely on Mr Cameron would weaken her. In fact, British diplomacy shines by its absence in the Ukraine dossier.”

The British prime minister has claimed — or at least his aides have spun it that way — that he has a special relationship with Mrs. Merkel.

Le Monde’s editorial director thinks differently. She argues that Mrs. Merkel has switched to François Hollande, a line that is confirmed by senior French diplomats in private conversations.

Ms. Kauffmann, who knows Berlin well, says that this reborn Franco-German axis “is serious. The attacks in Paris, Mrs. Merkel’s ungrudging solidarity and the way Hollande handled the event has brought the two leaders together.”

In the French cabinet meeting last week, the French foreign minister, Laurent Fabius, was openly critical of Britain’s non-diplomacy in Europe.

His intervention sparked criticisms from other ministers, including the Finance Minister Michel Sapin, who complained about the habit of the UK Chancellor George Osborne’s non-stop criticism of the Eurozone and its handling of the Greek crisis.

An awakening in Europe

These attacks from across Europe on David Cameron’s lack of policy on Europe are without precedent. They represent the gradual awakening across the Channel that Mr. Cameron’s proposed In-Out EU referendum — an irrevocable pledge if he retains power — is likely to lead to Brexit, Britain quitting the EU.

Why invest much time in a relationship if in a couple of years Britain will no longer be in the EU?

In Britain, two recently retired generals have taken the unusual step of publicly criticizing the prime minister. On BBC News, General Sir Richard Shirreff deplored David Cameron’s absence from team Europe’s efforts to try and stop Ukraine sliding into unstoppable conflict.

“The UK is a major NATO member, it is a major EU member, it is a member of the UN Security Council, and it is unfortunate that the weight that the British prime minister could bring to efforts to resolve this crisis appears to be absent.” General Shirreff called his prime minister a “bit player” and a “foreign policy irrelevance.”

Those are strong words, especially considering that, until 2014, Sir Richard was the UK’s highest-ranking NATO commander. He was echoing the criticism from General Jonathan Shaw who commanded Britain’s Special Forces (SAS).

In his new book Britain in a Perilous World (Haus Books), he describes David Cameron as a prime minister seemingly “more interested in the instant gratification of action rather than the tedious discipline of deep, coherent thought.” Ouch.

Criticism from within

Unlike in the United States — where outspoken generals once out of the military are commonplace — British senior army officers usually maintain a stiff-upper-lip silence about their political masters.

That these two admired military commanders have separately made the same kind of criticism of the prime minister as newspaper editors on the European continent shows just how low Britain’s diplomatic status has sunk even in the eyes of senior Brits at the heart of the British state machinery.

“‘The British Giant shrinks to Little England” is how Germany’s Die Welt sees Cameron’s new isolationism. The paper’s veteran London correspondent, Thomas Kielinger, is an Anglophile who taught at British universities and is author of a well-received Churchill biography, which is selling well in Germany.

But he asks “What will happen with the referendum on the EU Cameron promised in 2017? Uncertainty, thy name is the United Kingdom.”

Dwindling power

This is also true of the British in security policy. The size of the British army is reduced by current plans to 82,000 men — which can be comfortably accommodated in Wembley Stadium.

“A single British aircraft carrier currently holds vigil on the seas — there is no more question of ‘Britannia rules the waves.’ In the 1991 the Gulf War, the Royal Air Force had 31 squadrons. Now there are only eight. This explains why the British contribution to the air war against the Islamic State amounts to just 6% of all sorties flown,” Kielinger writes.

The paper concludes that Cameron — and by implication his country — does not matter anymore on the European stage.

True or not, the judgment is the harshest passed on a British prime minister in decades from so many who are friends of Britain and do not want to see the country slowly vanish as an international player.

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Why Putin Misses the Soviet Union So Much http://www.theglobalist.com/why-putin-misses-the-soviet-union-so-much/ http://www.theglobalist.com/why-putin-misses-the-soviet-union-so-much/#comments Tue, 17 Feb 2015 07:00:34 +0000 http://www.theglobalist.com/?p=39682 By Michael Vlahos

The Soviet Union was Russia's most inspiring claim to Russia's identity.

Credit: Geir Halvorsen - www.flickr.comThe Soviet Union was Russia's most inspiring claim to Russia's identity.

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By Michael Vlahos

The Soviet Union was Russia's most inspiring claim to Russia's identity.

Credit: Geir Halvorsen - www.flickr.com

On April 26, 2005, Vladimir Putin, President of Russia, proclaimed that the fall of the Soviet Union was indeed, the catastrophe of the century. From a post-Soviet perspective, rooted in Russian identity, why would he make such a claim? To him, it is about more than power politics.

The Soviet Union was Russia’s most inspired and inspiring bid for both national and world historical identity. Like the United States, the Union of Soviet Socialist Republics offered a universal vision that all humanity would supposedly one day joyously embrace.

If the Americans had “Manifest Destiny and Mission” and regularly called on God as a witness to prove that the country was destined for greatness, the Soviets had Marx. Communism, inspired by the Soviet example and validated by the heroic fight in WWII, was cast as the inevitable conclusion of world (and human) history.

Both American and Soviet identity-creations were cunning in their insistence that the universal in their national ideas was also prospective — in the realm of things to come.

The United States aimed “to form a more perfect union” every day, while the Soviet Union cast itself as the “vanguard” of the future proletarian utopia. Both represented promises of a universal human state to be realized in the future.

Hence, both the United States and the Soviet Union could claim that the fulfillment of their respective national identity ultimately depended on the entire world sharing these values, which could come only in time, with humanity’s willing conversion.

Competing over inspiring the world

This apparent ideological contradiction endowed the competing visions of American and Soviet identity with enormous power and authority.

For the United States, it meant that a loose collection of former colonies could go forth believing themselves to be the prophetic bearers of a future global community of nations, which would someday all look to America as their leader and guide.

The USSR, in a single stroke, created the model for a new community of humanity through its very naming conventions and constitution. The old empire – from imperialist Russian cities to the imperial frontiers – was transformed at once into a united commonwealth of nominally co-equal socialist republics.

Even the Russian republic, within the larger union, reorganized itself as a commonwealth of federated Russian republics. This represented a vision of what the whole world might become as other nations rightly chose to join the Soviet international commonwealth.

In the meantime, the Soviet Union, born in adversity, might remain for some time just the kernel of a greater world community of socialist republics to come.

Hence, as Stalin enunciated in 1924, the Soviet Union felt it had to adopt, as a first step, a strategy of “socialism in one country.”

What this meant in practical terms is that the Comintern existed as a prospective identity for Soviets, while the actual world they inhabited was isolated and indeed alienated from much of the rest of humanity.

The Soviet identity was thus able to enlarge Russian identity by promising that long-sought sense of belonging. That would inevitably arrive in the universal community of humanity to come.

And even while Russians still inhabited an in-between, marginalized place in the global system of the 1920s and 1930s, the destiny of history guaranteed future breakthroughs.

Soviet victory in World War II created a wider community — enhancing the universal promise. Outside Europe, other countries, as they freed themselves from colonial rule, began exploring the socialist path. Was the breakthrough at hand?

From the Russian perspective, with the Warsaw Pact, China and other fraternal socialist republics, there was at least some basis for belief in the 1950s and 1960s that Russia was finally part of a larger community — even as the promise of a future global human community began to fade with the shock forces of the Cold War.

The Soviet Union was always the big gambit for Russian identity. Even if its universal vision could never be attained, actual attainment in the immediate present was arguably never the intention. Like the imperial visions of Russian rulers past, it was the business plan for future belonging.

Denying Russia its identity

But in its idealized workings, the Soviet Union was at heart a community concept, a commonwealth with Russia at the center. Its function, in terms of Russian identity, was to bring Russia in from the margins.

As it turned out, denying Russia what it had long sought — a place of belonging – became the West’s relentless modus operandi throughout the Cold War. The net effect of its actions was to shrink that community, marginalize and isolate it.

This strategy only intensified Russia’s purgatory. If the USSR was the big gambit for Russian identity, then “containment” was a form of civilizational exclusion committed to the utter destruction of the Soviet Union.

Containment succeeded. But the United States made no effort to offer a new place for Russia’s sense of self — both within the West and yet also commensurate with its deep identity needs.

As Russians see it, America asked for submission — and, in exchange, offered only subsidiary status. This represented a form of shame to a proud identity that had for so long lived at the edges of the wilderness.

If we look through collective Russian eyes, we can see how Putin’s declaration makes only the bitterest sense. Perhaps too, as the unraveling of their world proceeds — and comes to touch us — it may begin to make bitter sense to us as well.

Read Part I:
Putin’s and Russia’s Quest for Identity and Belonging

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Putin’s and Russia’s Quest for Identity and Belonging http://www.theglobalist.com/putins-and-russias-quest-for-identity-and-belonging/ http://www.theglobalist.com/putins-and-russias-quest-for-identity-and-belonging/#comments Mon, 16 Feb 2015 07:00:43 +0000 http://www.theglobalist.com/?p=39676 By Michael Vlahos

How withholding respect for Russia could lead to war.

Credit: Mark Rain - www.flickr.comHow withholding respect for Russia could lead to war.

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By Michael Vlahos

How withholding respect for Russia could lead to war.

Credit: Mark Rain - www.flickr.com

Will Americans ever feel the pain – of other nations? We Americans tend to see ourselves as above such sentimentality. Yet, perhaps we might make an exception for Russia. To see why, let us reflect on our responsibility for its desert wandering since 1991.

History shows how banishing a celebrated power to the wilderness can be like stripping that people of their identity. Russians do not wish to return there. And we Americans should not wish Russians to see us as the main agent of their exile.

Identity in world context

National identity does not exist in isolation. Identity is all about belonging. And a nation’s standing within the larger community of nations is what belonging is all about.

For 500 years, Russia has been in an in-between space, struggling to form cultural communities of kinship and identity with others. It has longed to join such cultural communities (Western Europe) or to recreate them (Byzantine Commonwealth).

Irrespective of one’s politics and historical viewpoint, what stands out is how happily tone-deaf the West has been to the needs of Russian identity. At the drop of a hat, circa 1948, the Soviets – so elemental in the defeat of Hitler — were at once reduced again to the Russian Bear: Vicious, clawing, unreasoning – and yet also slothful, dolorous and dirty.

The West embraced its own stage-managed Cold War with real zest, making of Russians exactly what Russia had always feared: a cartoon of evil. That served the West’s purposes well – a Russia that was conveniently distant, always appropriately threatening, yet never truly out-of-line.

Playing by the rules

We Westerners never even asked ourselves why the Soviets played by the traditional rules of diplomacy and war? The Soviets were no Islamic State or DPRK assassins.

Americans always assured themselves that this was because the Soviets were cowed by the U.S.’s strength. But were they really?

Today’s parasite killers have no respect even for overwhelming power — so why then would the Soviet Union?

Perhaps we should consider why the Soviets wanted, even needed, to play by our rules. Might they have been trying to tell us something?

Maybe the Cold War shows our own deeper prejudice. In iconographic terms, it was an almost perfect re-run of Britain’s Crimean War fantasies, spun out frame-for-frame, but on America’s time, from 1950 to 1990.

Tony Richardson’s 1968 film Charge of the Light Brigade lays bare all the Western — and mainly, Anglo-American — prejudice against Russia.

It is almost as if the seduction of mid-Victorian cartoons, in which Russia is bear-baited for the entertainment of the 19th century superpower Great Britain, reaches from a century past to seize American consciousness.

Objectifying Russia is a truly longstanding U.S.-UK joint enterprise. Our animus against Russia as the other, the alien, the stranger became a self-defeating cultural filter.

Is the Russia we see today, to an appreciable extent, not the product of our prejudicial wish fulfillment and our bullying over these post-1991 decades?

The lost U.S.-Russian alliance

Truth is, we Americans treated Russia (née Soviet Union) like a defeated power in 1991 – as if it had been some kind of junior Third Reich righteously vanquished. It was never seen as the ally we had known so long, finally come to its senses and having seen the light.

There is a big difference between the defeated power and an ally. Americans have never fought Russians. Russia was the ally of the United States in its civil war with the Confederacy (unlike faithless Britain and France).

American foreign policy in the 1930s leaned pro-Soviet — premiere ship designers Gibbs and Cox even designed super-battleships for Stalin. Then we were allies in the Good War against Nazism.

Can we not see now how NATO enlargement (pushed too far) was – in Russian eyes – no different from the grand sweep of historical contempt the West has shown Russian identity?

Redefining identity

If Germany and Italy, after deep defeat, could be allowed to rediscover themselves and make their identities whole again, why not Russia? We have never allowed Russia – always banished to in-between realms of identity – to find its own place of honor in our own halls.

If Russia seeks acknowledgment, why should we always, reflexively, deny them? Is Russia not, after all, a great civilization and a great nation? Can we not embrace them as such?

It seems not. We forget that Putin represents the Russian people, and our cartoonish renditions of him inevitably become the most inflammatory caricatures of them.

Four misconceptions underlie our enduring prejudice.

1. Putin as “Hitler returned” – so alien and evil that there is nothing we can do but get ready for the fight to come.

2. Putin as a brat and bully spoiler – Russians are all criminals, natural-born racketeers everywhere they go – and Putin is just the worst.

3. Putin as the Pied PiperSvengali or even more darkly, Rasputin, weaving a web to ensnare a benighted Rus, who cannot resist him.

4. Russians make Putin happen – they thus show themselves to all be stupid fools just as primitive and savage as we always thought.

All this is from a very old playbook:

First, we still treat Russia as a defeated power – forever. 



Second, we still slather on triumphalism from the Crimean War to the Cold War

Third, we still harp on their “creepy” ways (meaning, Orthodox ways).

Fourth, we withhold respect until they reform their evil ways.


Yet our judgment should remind us that the United States and Russia have a very old, co-dependent relationship. How we regard Russian identity is in many ways more important than what we do to Russia.

We have become the judges of their identity, which is all any of us have. Moreover, their identity today is fragile, desperate and aggressive. Our active prejudice is a negatively charged force multiplier. Proud nations like Russia act badly when slighted.

How do we disentangle deliberate bad behavior (their responsibility) from centuries’ accumulation of Western contempt (our responsibility)? Is Russia wholly without democratic expression?

The democratic experience

We might remember that Soviet Communism lasted a lifetime in Russia itself, while it held sway for only a couple of generations in Central Europe. Very few Russians alive when communism ended could recall the pre-communist days (which themselves were not democratic).

In contrast, in a country such as Czechoslovakia, where communism’s duration was shorter and wedged between democratic periods, a new generation of democrats could still reach out to an older generation of democrats for guidance and inspiration. For example, Havel could call on Dubček and claim the stainless memory of Beneš.

Russia cannot rebuild such institutions, but will have to create a world wholly alien to their top-down traditions.

The U.S. government makes “rule of law” central to its promotion of “American democratic values.” But it does so explicitly as part of a media-showcased program of political conversion (much ballyhooed in the “Orange Revolution” of 2004-5).

The United States wields its color revolutions like acts of public submission. “Do the ritual” we demand, or the United States will simply withhold its respect – or worse.

As we can see from the color revolutions early this century, the real purpose is to generate good feeling in the American electorate and to put in pliant regimes. The democracy rhetoric is all window-dressing for political self-interest. Pushing this on the Russian Commonwealth is a very high-risk proposition.

What are our actual choices? Let’s start with this insight: Russians – Russia, Putin, it is all the same – will never submit. Americans are setting them up for failure by insisting that the only path to a better society lies through public submission to the United States.

Americans trumpet how well this worked in Germany and Japan. But Germany managed to reanimate deep, native democratic traditions. And Japan never truly submitted, but found ways to keep the old weave of institutional identities alive.

With Russia, demanding submission to “the American way” goes too far – and is just plain wrong. It is wrong to withhold respect if disrespect means risking a war — hot or cold.

American treatment of Russia since the Cold War has been an historical mistake – and though doubtless too late now, such a course is still ours to unmake before it is too late.

Read Part II:
Why Putin Misses the Soviet Union So Much

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The New Russian Empire: Modern Slavery in Russia http://www.theglobalist.com/the-new-russian-empire-modern-slavery-in-russia/ http://www.theglobalist.com/the-new-russian-empire-modern-slavery-in-russia/#comments Mon, 16 Feb 2015 07:00:29 +0000 http://www.theglobalist.com/?p=39661 By The Globalist

154 years after the abolition of serfdom, Russia is Europe’s most slave-holding nation, in modern terms.

Credit: Roman Harak - www.flickr.com154 years after the abolition of serfdom, Russia is Europe’s most slave-holding nation, in modern terms.

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By The Globalist

154 years after the abolition of serfdom, Russia is Europe’s most slave-holding nation, in modern terms.

Credit: Roman Harak - www.flickr.com

1. Russia has the largest incidence of modern slavery of any European or Eurasian nation.

2. This figure is according to the Walk Free Foundation’s 2014 Global Slavery Index, which defines modern slavery as any practice that traps people in modern servitude, including human trafficking and forced labor.

3. Estimated at just over one million, the number of modern slaves in Russia represents 0.7% of the country’s 143 million people.

4. Many of the victims of slavery in Russia come from former provinces of the Russian Empire (and former republics of the Soviet Union), such as Tajikistan, Kyrgyzstan and Uzbekistan.

5. The U.S. State Department has reported that, in 2013, thousands of North Korean citizens were being forced to work in the timber industry in Russia’s Far East — apparently with the approval of both governments.

Sources: Walk Free Foundation with additional analysis by The Globalist Research Center.

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Empowering India’s Poor http://www.theglobalist.com/empowering-indias-poor/ http://www.theglobalist.com/empowering-indias-poor/#comments Sun, 15 Feb 2015 07:00:59 +0000 http://www.theglobalist.com/?p=39959 By Sanjeev S. Ahluwalia

What Modi’s BJP Party can learn from the upheaval in Southern Europe.

Credit: British High Commission<br />
 - www.flickr.comWhat Modi’s BJP Party can learn from the upheaval in Southern Europe.

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By Sanjeev S. Ahluwalia

What Modi’s BJP Party can learn from the upheaval in Southern Europe.

Credit: British High Commission
 - www.flickr.com

February is when the budget season heats up in India. Ahead of presenting the Union government’s annual budget on the 28th, the Indian Finance Minister gets flooded with unsolicited advice.

This time, the current minister, Arun Jaitley, is faced with a veritable tsunami of advice. In part, this is a consequence of the just concluded Delhi state assembly elections, which turned into a debacle for the BJP and Narendra Modi.

BJP: A party only for the rich?

The BJP has traditionally been a party that works well with the private sector. If viewed through a “zero-sum” filter, this strategy could be perceived as working against the immediate interests of the poor.

Given the recent election results – and especially the upcoming state elections in Bihar, India’s third most populous state – the expectation is that the Finance Minister will stray from the hard path of economic reforms announced last year. He may resort to “populism” to placate the poor.

Will Bihar drive the budget?

The BJP cannot afford to lose Bihar. Doing so will surely crack the aura of invincibility of Prime Minister Modi.

Some observers believe it is already dented by an ill-advised, last minute tactic in Delhi of pitting the Prime Minister against Arvind Kejriwal. This was a surprising choice, given that it was known as early as January 15th, when the elections were announced, that the BJP was unlikely to win.

None of this political environment is of the Finance Minister’s own making. But it surely hampers him greatly in being bold, outspoken and visionary on economic reforms, as he has shown an inclination to be.

Endow the poor for wealth creation

There is one bright idea Arun Jaitley should seize on — financial inclusion. The Prime Minister’s People Money Scheme – known as the “Jan Dhan Yojna” has opened 125 million new bank accounts during the last few months.

However, the bulk of these accounts remain dormant. Even so, this is a good scheme. Recent work, including by Thomas Piketty, illustrates that personal wealth is the biggest asset in incremental wealth creation.

Why not extend it, albeit in a small measure, to the poor also? “Dhan” (wealth) is an asset, something you own. It is a pre-condition for wealth creation.

Why not open bank or Post Office accounts for the poor also? Of course, the poor have no surplus to put into a bank. But the government can fill this gap by depositing Indian rupee 10,000 ($164) into each of the bank accounts of all “poor” account holders as a 10-year fixed deposit.

To avoid any abuse, only the interest income would be available to the account holder until maturity. To narrow the financial impact of the scheme initially, only poor women and poor senior citizens (i.e., the most marginalized of the poor) could be made eligible.

Fiscal fundamentalists will deride this measure as irresponsible in an environment when subsidies in India have to be contained, if not reduced. There are two reasons why their apprehensions are unfounded.

Everyone a winner?

First, the small value of the deposit and its unavailability for withdrawal for 10 long years reduces the attractiveness of the scheme for would be scammers.

The annual interest earned of Rs 800 or $13 (at 8%) per account is not enough to attract fraud, but sufficient to keep a genuinely poor person interested in the account as a source of additional income. For the Bank, this provides a pool of valuable long-term resources for Treasury operations.

Second, the fiscal outlay, while significant, is not unmanageable. The likely pool of “poor” women and senior citizens would be around 200 million.

If full coverage is targeted over a three-year period, an annual budgetary allocation of around Rs 700 billion ($11.3 billion, equaling only 18% of the existing aggregate allocation for subsidies) would be required. The spread effect, both political and economic, is hugely significant.

In comparison, India’s Union government alone spends an estimated Rs 4 trillion ($66 billion or 4 % of GDP) on subsidies. Much of this outlay is either lost in transit to the beneficiary or the targeting of the subsidy is so vague (fertilizer and energy subsidies) that it benefits the poor only marginally.

A “wealth and income transfer” scheme aided by the Unique Identification mechanism, where available, is likely to be more efficient and effective.

The recent developments in Southern Europe and now in Delhi should convince Mr. Jaitley that “demonstrated equity and inclusion” as a “brand” is in.

Citizens do appreciate a tough “reforms” stance. But it must be balanced by effective instruments for income transfers to the poorest of the poor.

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