POL 5032 Week IX

Compare the EAC to the EU.  Will politics or economics determine the EAC’s future?

As a point of departure I would like to draw your attention to the work of Candice Moore on regional integration in Africa.  Writing in 2004, Moore argues that Africa suffers acutely from a democratic deficit, not only because of problems arising from representation in government domestically, but also within the regions themselves. Moreover, she asserts that Africa also faces severe problems with underdevelopment and that poverty persists despite Africa’s attempt to model its regional structures on other regions.

Today, while states within the EAC may be showing significant growth, financial inflows, and may appear to be bounding through Balassa’s levels of integration, reality for many of the citizens in the member states is far less positive. Why would this be so?  I think the answer can be found in the nature of the institutions within the member states.   On arriving in Nairobi, I was rather shocked at the capacity of the bureaucracy there, and this feeling certainly did not fall away on my entry into Tanzania.  Institutions within the EAC are young, and remain state-driven or state-centric, which will negate any hope of relocating identity to the regional body in terms of Haas’ notion of ‘political spillover’.  The institutions that have been established mimic those established within the EU, but lack the power those institutions wield.  As a result, the EAC’s attempts to head in the same direction as the EU are fairly hollow and there is a significant gap between theory and practice within the region.

Thus when we review theories on regionalism in Africa in general and the EAC in particular, we should first understand that there are some acute deficiencies within the theories themselves and they may not reflect or predict regional development within the EAC very accurately.  At best, regionalism within the EAC will probably devolve into a collective structure to develop the infrastructure within the region, but the region will remain very frail politically.

Candice Moore, “Regional Integration and Regional Governance Under the New African Initiatives: A Critical Appraisal,” Centre for Political Studies, Vol. 17, No. 3, 2004. 

POL 5032 Week VIII

How have the BRICS fared in Africa?  What is the nature of South/South trade and investment between the BRICS and Africa, and have the BRICS trumped the developed world within Africa?

My thanks go to Thomas Isbell for preparing the debate this week on the BRICS while I was away investigating the EAC in Kenya and Tanzania. His charts were most informative and surprised me with some of the more salient facts on the level of trade between the BRICS and Africa. 

POL 5032 Week VII

Is there any merit in correlating the political arguments of Calhoun, Clay and Webster to the European Union?

 When I last wrote about the problems of the European Union, my mind was focused on the debate between economics and politics.  I was still deeply immersed and influenced by the arguments on neo-functionalism and the federalists within Europe.

I then read David Cameron’s ‘EU speech at Bloomberg’, delivered on Wednesday January 23, 2013.  Put simply, David Cameron argued that the first purpose of the European Union was to secure peace, and this he argued, had been achieved.  Today, he maintains, the main, overriding purpose of the European Union is different: not to win peace, but to secure prosperity.  

Given the continuous economic problems the EU is still experiencing, it would appear that the future of the European Union lies in fixing its economic problems and this influenced my original thoughts on whether to concentrate on economics as espoused by Haas and Balassa or to look for a political solution, which in essence would strengthen the institution of the EU itself by creating a federation with all the implications that this would entail.   Now I feel there are three options:

1).  Continue with more of the same, but as Cameron argues, “More of the same will just produce more of the same – less competitiveness, less growth, fewer jobs.”

2). Strengthen the ‘federalist’ component by creating a central bank, a single market, a single currency, a federal parliament, together with a new central government on the lines of either Germany, Switzerland or the United States of America.   This would immediately stop the economic rot, but is this the only solution?

3).  Create a confederation of states that devolves power back to the states within the European Union; a European Union that respects the rights and individualism of each state while strengthening the notion of a single market without necessarily adopting a single currency.

 Key here to the arguments is the idea of a Federalist United States of Europe as opposed to a confederation of states that would more resemble the Zollverein, established by treaty in Germany in 1834.

 In order to understand the concepts more fully, I returned to the arguments and debates that raged within the United States during the early part of the 19th century, and especially the many lessons to be learned from the pre-Civil War state-rights advocates, particularly those of John C. Calhoun.

 Calhoun’s understanding of federalism provides an alternative vision to the possibilities of federal organizations for emerging supra-national unions.  His arguments, and indeed his entire intellectual attack still resonates against the formation of large pluralistic super-unions that are based on the federal ideal as evidenced by the Maastricht Treaty and Lisbon Treaty preambles.

 Larry Backer’s excellent article titled “The extra-National State: American Confederation Federalism and the European Union,” Columbia Journal of European Law 7, (2001) provides the point of departure, but to understand where the European institutions are heading, we also need to understand how Chief Justice John Marshall revolutionized the relationship between Congress and the judiciary, first through his concept of judicial review, and second through his ruling on federal judicial power.  Indeed his actions irrevocably changed the nature of power between the American States and the federal authority. 

 Is the European Court of Justice following Marshall’s path, and will the ‘National’ Courts of the various member states push back?  Evidence would suggest that the national courts, especially the German Courts are adamant that the laws of the land supersede any notion of the supremacy of EU law for now. 

 To really understand where EU institutions are heading, we also need to revert to the historic understanding of agency as espoused by Hegel, or more recently Anthony Giddens, and the position of nationalism within the European Union.  Where for example would you position the ideas of Benedict Anderson and his ‘Imagined Communities’ for instance? 

POL 5032 Week VI

What are the core theoretical arguments that underpin Regionalism?  Can we argue that Balassa is correct?  Is a Federation of states the correct endpoint for a supranational regional entity?

Earlier on this blog, and in my first Scramble book, I wrote on the various theories of regionalism.  At the time I wanted to explore Mitrany, Haas, Balassa, Hettne  and Amin in order to ascertain how regions evolve.  Key to my research was, first, whether economics produced a ‘political spillover’ within a region, and second, whether regionalism was a response to globalization or a stepping stone to yet greater global economic integration. 

The research was centered on Africa, which suffered from three core problems prior to the turn of the century: (1) there was a singular lack of FDI; (2) trade was skewed in favour of developed nations; and (3) there was still a problem of small markets, essentially the legacy of colonialism.

 The solution mooted was regionalism, and a debate ensued over the merits of ‘open regionalism’ as opposed to state intervention.  In tracking President Thabo Mbeki’s ideas, I arrived at a notion of ‘developmental functionalism’ where the state took on an economic role through parastatals in order to pay side payments to labour while creating regional development.

Now in focusing on Europe and the development of the European Union, the issue turns on whether economics, through open regionalism, works at all.  Is there in fact any ‘political spillover’ from the region’s economic activity, and can we really accept the theories espoused by both Haas and Balassa.? 

Moreover, when the arguments are coupled with arguments on the Euro and Mundell’s theories of Optimal Currency Areas, the appearance of a Federal United States of Europe looks very much like a pipe dream.

Week VII will be reserved for a discussion on Federalism versus Confederation within the context of the European courts, so the discussion this week should remain centered on regional theory.  In essence, does economics really trump politics, or are we being seduced by mere myth when following Haas and Balassa?

POL 5032 Week V

Putnam’s Two-Level Game theory can be a good point of departure to determine how Angela Merkel will deal with the debt crisis within the EU.  Set out Putnam’s argument on Two-Level Games and determine what side payments Merkel has created to pay off the protagonists within Germany.

I shall start with a few false starts.  First, I want to add that the question above has to be addressed through Mundell’s Theory of Optimum Currency Areas in order to squeeze the debate into an area governed by the Euro.

Second, with Putin acting like Peter the Great on a bad day, I wrote the following to set up a debate over the current fiasco in the Crimea:

I have been thinking about Putin's foray into the Crimea.  To my mind he acted quite rationally. Once Yanukovych was toppled, the chances of the Ukraine joining the European Union and probably NATO were quite high.  So what chance then did Putin have of hanging on to his cherished port of Sevastopol? Would a Ukraine, as part of NATO, continue to honour the lease agreements for the Russian Black Sea Fleet?

Also as Khrushchev had 'given' the Crimea to the Ukraine as part of an administrative realignment, could Putin not argue that he was 'restoring rights wrongfully denied', which would underpin his right to intervene in the Crimea through 'just cause' as a tenet of Jus ad Bellum.

There has been strong criticism about Russian 'armed thugs' influencing the Crimean referendum, but again could one not argue that these 'thugs' did not hinder the locals from endorsing the annexation with a 90 percent ratification, rather they contained or prevented the Ukrainian armed forces from influencing the vote by confining them to their barracks? (I understand there are around 25,000 Ukrainian armed forces in the area).

So Obama's histrionics in the White House are somewhat undermined.

Having written the above, I find that Putin's actions are embedded in a 19th Century mindset, instead of a 21st Century logic.  The cost to his trade with the EU (some EU400 billion) could be substantial. Why would he consider the Black Sea Fleet more important than his economic relationship with Europe? Does he understand that his actions will force Europe to diversify its energy procurements?  So in the long-term is he shooting himself in the foot?  Or has he decided that Europe's response will be flaccid and short-term?  

The key, once again, lies in the mind of Merkel.  We can now argue with a strong sense of probability that the Ukraine will join the European Union as a result of Putin’s actions.  This event will immediately create another market for Germany’s exports, and new investment opportunities for German industry.  Thus, will Merkel be happy to accept Putin’s coup? Current figures demonstrate that Germany continues to enjoy a current account surplus with its EU partners, and we also know through last week’s debate that by keeping the Euro competitive through deflationary policies in the peripheral countries of the EU, Germany continues to enjoy strong exports to the rest of the world.

So just who sits on Merkel’s domestic game board?  The media would like us to believe that the core problem for Merkel is European debt within countries like Greece, Spain, Portugal and Italy, but is this really the case?  Do German taxpayers really dominate the German domestic game board? Does Germany control the Euro, and is the European Union an Optimal Currency area?  And if not, how does the Euro act as a substitute currency?

Is Merkel really playing a different game?  Are German exports and German investments not the key drivers of the debate in Germany? What is Merkel offering as side payments to Germany’s industrial and commercial leaders?  And how is she paying off the German taxpayer to keep the status quo?

There is no question that the world is heading towards a ‘two-speed’ economy that is throwing up more and more inequality between nations and within nations.  Germany at present enjoys a booming economy, but this boom is creating a new underclass within Germany itself, and within the other nations of the EU.

How is Merkel maneuvering on the European Union game board to keep all her balls in play and how does this affect the German domestic economy?

POl 5032 Week IV

Who will win the final argument? Keynes or Hayek?  Set out the views and arguments that underpin each protagonist and then argue a case for the European Union.

I want simply to add this interview with Robert Pollin, as the argument is so powerful.  And to mention that I have bought my malaria pills already.

 Robert Pollin is Professor of Economics at the University of Massachusetts in Amherst. He is the founding co-Director of the Political Economy Research Institute (PERI). His research centers on macroeconomics, conditions for low-wage workers in the US and globally, the analysis of financial markets, and the economics of building a clean-energy economy in the US. His latest book is Back to Full Employment. Other books include: A Measure of Fairness: the Economics of Living Wages and Minimum Wages in the United States, and Contours of Descent: US Economic Fractures and the Landscape of Global Austerity.

Transcript

 JAISAL NOOR, TRNN PRODUCER: Welcome to The Real News Network, and welcome to this latest edition of The Pollin Report.

 Austerity continues to take its toll on Europe, with the exception of Germany, the E.U.'s strongest member country, and whose government strongly supports austerity for other countries.

Now joining us to discuss this is Robert Pollin. He is a founder and codirector of the PERI institute in Amherst, Massachusetts. He's a regular contributor to The Real News.

 Thank you so much for joining us, Bob.

 PROF. ROBERT POLLIN, CODIRECTOR, POLITICAL ECONOMY RESEARCH INSTITUTE: Thanks very much for having me on.

NOOR: So you just returned from a major E.U.-wide conference discussing the broad implications of the financial crisis and its aftermath. Can you tell us a little bit about what you took away from this conference?

POLLIN: Yeah. This is a very important conference that I was at most of last week that took place in Amsterdam. It's a project that actually has been sponsored by the European Union, the European Commission. And it's a group of, I would say, progressive economists throughout Europe. The organization is called--the acronym is FESSUD, Financialization, Economy, Society, and Sustainable Development. And it is led by an outstanding British progressive economist named Malcolm Sawyer at the University of Leeds. The project has, I don't know, 20, 30 researchers working on this issue of why the crisis happened, the financial crisis, the Great Recession. And of course what to do now is the overarching question.

 So, you know, the big issue clearly is the ongoing commitment, the clinging to the economics of austerity that is dominating in Europe, and the impact that this is having, and why we can't get a serious alternative to austerity economics moving forward.

Now, there were, of course, a lot of different views expressed at the conference, but the main takeaway that I took from the work of European economists is basically as follows. Okay. What are the arguments? I mean, one of the big arguments in behalf of austerity, the idea that right now the job of government is to cut back on spending even though we still have mass unemployment, one of the big arguments had been that's because when governments hit high debt levels, that automatically translates into lower GDP growth. Well, that argument has since been debunked by, among others, my coauthors here at UMass and myself, debunking this argument of professors Reinhart and Rogoff. So that argument doesn't hold up anymore. It just doesn't hold up in terms of evidence.

 A second argument that one might think of is that, well, for the weaker economies--Greece, Spain, Portugal, Italy--they would face, if they borrowed a lot now, they would face high interest rates. This makes it difficult for them to sustain the borrowing. But on the other hand, you have the other--you have Britain, Germany, France can borrow at very low rates. And on top of that, you have, like we have--the United States Federal Reserve is keeping the interest rates at rock-bottom levels; we have the European Central Bank that could influence rates and make it more viable for the European economies.

 So the question is: why isn't that type of policy being pursued? So why aren't the more affluent economies, Germany in particular, helping the other countries along to stimulate? And here's a basic argument that we got. Number one, Germany has been relatively successful on the basis of it being successful in exports. And the way they're being successful as an exporter is by having very high productivity levels in their manufacturing while keeping wages relatively low. So Germany is able to export by keeping--putting out their manufacturers at relatively low prices by not allowing workers wages to rise with productivity. So, actually, the German working class has seen inequality rising at levels comparable to U.S. inequality.

 So number one, when we say Germany has been successful, we don't mean all Germans. We mean the wealthy in Germany. We mean the most affluent in Germany. The German working class, middle class, and poor are actually doing worse. So that's number one.

 But number two--and this is a very interesting point that came out of the conference--is this, that generally when an economy is successful at exporting, what usually happens is that the value of its currency goes up. So if we think about the United States, if we exported more, that would mean more people want to hold dollars. And when more people want to hold dollars, the value of the dollar goes up relative to other currencies, which in turn would make the U.S. less competitive in export. But Germany has the situation in which it benefits, ironically, from the fact that even though they are very successful at exports, they share the common currency, the euro, with the rest of Europe, and the rest of Europe remains in the tank, the rest of Europe is not succeeding in exporting, so that Germany is, ironically, benefiting by the fact that the euro does not appreciate, does not go up in value. And that enables Germany to continue to succeed as an exporter far more than they would be under other circumstances. So the situation is in--where Germany is able to dominate economic policymaking in Europe because they're the most successful and largest economy--and they've also been able to rig the policymaking with respect to the euro, because it benefits them most. It benefits them most to be able to be an exporter that still can contain the euro, the value of the currency lower.

 So the austerity agenda is helping the wealthy in Germany while it is hurting everybody else in Europe.

 NOOR: And lastly, there's a new book out titled The Body Economic that examins the health consequences of austerity.

 POLLIN: Right. So, it's--you know, a lot of this stuff comes out, it sounds highly technical, and what does it really mean for people. So I think that this--that it's a very interesting book. I don't know the authors at all. It's called The Body Economic. And it looks at the health consequences of austerity policies in both the U.S. and Europe.

 So what are some of the main findings? What they show is a strong correlation between rises in unemployment rates and clinical depression rates and increases in suicide rates, a very close correlation. So what does austerity mean for real people? It means that they're becoming more insecure, their life circumstances are worsening. And that gets reflected in clinical depression and suicide. Not only that. I mean, we have--in Greece we have--starting to see an outbreak of malaria, which hasn't been a problem in Greece for generations. Now, why would you have an outbreak of malaria? What does that have to do with austerity policies? Well, actually, it's quite direct, because when you cut back on public health spending, you're cutting back on the controls, the sprays that are used to control the mosquitoes that carry malaria. So when you cut back on that, you start to see malaria reemerging. And, of course, the impact of these kind of health effects become cumulative. If you cut back one year, the impact is not going to be so big. But if you cut back two, three, four years, well, we're going to see malaria reemerge in Greece and throughout southern Europe as a result of austerity. That's the argument in The Body Economic. The subtitle of the book is called How Austerity Kills.

 NOOR: Thank you so much for joining us.

POLLIN: Thanks very much for having me.

POL 5032 Week III

What are the key premises that underpin GATT and now the WTO?  Are multi-lateral trade agreements still applicable within the world trading regime, and if not why not?

The post-World War II order on trade really begins at Bretton Woods where the United States promoted the notion of an International Trade Organization (ITO) that would serve as an international counterbalance to domestic tendencies toward protectionism.   The ITO would keep trade lines open, which would offset mercantilist tendencies.  

Protectionist interests in Congress killed the ITO and President Harry Truman advanced the idea of GATT as a temporary alternative.  In 1948 GATT became the primary organization responsible for the liberalization of international trade, through a series of rounds.

GATT was based on the principles of reciprocity and non-discrimination.  Trade concessions were reciprocal as all states agreed to lower barriers together.  Non-discrimination meant that imports from all countries would be treated the same way. 

At the Uruguay Round, held in 1993, GATT gave way to the World Trade Organization (WTO), now headquartered in Geneva.  The WTO has been dogged by a lack of progress, however,  and the DOHA round has been singularly unsuccessful in opening up further trade concessions.  As a result, nation states are turning more and more to bi-lateral agreements as the mercantilist impulse continues to fuel protectionism within certain states and to drive discriminating agreements that are often at odds with the spirit and practice of the WTO.

Moreover, the bargain between developed and developing states over TRIPS has not materialized as both Europe and the United States continue to protect their agricultural interests.  The core premise, although unstated, has to turn on whether agriculture remains a strategic interest or not. 

Trade, or in Susan Strange’s terms, the production structure, remains interesting to our core arguments as the European Union now insists on negotiating as a region with other regions.   How does this impact on nation states and the premises that underpin the WTO? 

POl 5032 Week II

Can you explain Susan Strange’s Finance structure in terms of the Bretton Woods institutions?  What are the fundamental changes that have occurred within the financial structure since WWII and how does the financial structure play out within the international financial system today?

The question really points to where we are intellectually trying to end up. As a point of departure we have to look at the evolution of Bretton Woods and understand the nature of the Unholy Trinity since Nixon delinked the Dollar from US Gold reserves.  That’s a given.  Today Michael Power provides the tools to map the position of each nation state in terms of the product life cycle.  If we take Michael’s ideas a step further, we can map each nation state in terms of their respective populations.  So if we look at Japan, it really is geriatric in relationship to the youth of the states of Africa. Thus, controlling the finance structure has implications on how states maneuver on pensions and health, for example.  Today, Africa has a huge advantage, and Europe is really interesting.  How will states control state funds?  How will Europe control state deficits?  How will Europe solve its Euro crisis, especially on the periphery in Greece, Italy, and Spain and eventually in France?

In the recent past, the BRICS have been the darlings of the financial world while the developed world struggled with debt, growth and stagnation. With US tapering, those states that have relied on their capital accounts to fund current accounts deficits are beginning to struggle, and China, with a growth forecast at 7.5% is probably the exception, as it begins to rebalance its economy.

So where are we going, and when we move on 'optimal currency areas' and the development of the Euro, will we see Mundell as the new Pied Piper? 

POL 5032

A new year, a new beginning in the graduate school. This year we have to answer nine questions and I want to address each one of them each week to see whether I can tease out some semblance of continuity.  And so:

Are states still the most important unit of analysis within IR and IPE theory? If so explain how the theories elaborate on this viewpoint, and if not why not? 

Realism and Pluralism with the corresponding IPE theories of Mercantilism and Liberalism, to my mind, still dominate the theoretical debate. And the more I think about IPE theory, the more I believe that politics dominates economics.  This I hope to prove over successive weeks, particularly when we deal with regional theories.  So to my mind states are still the most important unit of analysis, and we should be asking ourselves whether the world has moved beyond the US unipolar moment to a more multipolar balance of power or not.  And just how should we think about the current Balance of Power within the international system? 

Alternatively, we can argue that states are no longer the prime movers and shakers within the international system, and accept the liberal viewpoint of the withering away of the state.  I am not buying right now, as I believe nationalism is once again on the rise and we have not entered a post-Westphalian system.   

Greece Again

WIll the Greek government vote a budget that crushes the Greeks yet again?  Greece is predicted to fall short at Euro 2.5-billion this year, so cuts have to be made.  Yet the Greek government is hanging on with a margin of just four seats, and the Greeks are no longer willing to make any more sacrifices on the alter of EU austerity.  If a budget does pass that includes the required cuts, expect massive riots. 

Can Europe afford the social unrest and will the paymaster-in-chief, Angela Merkel give just a wee bit of ground? I think a confederation, like the Zollverein, with a dual currency, may prove a better solution.