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June 27, 2007

Hubris, the Middle-East and Tony Blair

Hubris originally was a human action or attitude that gave offence to the gods. Today it tends to mean some thing along the lines of over-bearing pride leading to arrogance, an over-estimation of personal worth. Tony Blair is no longer British Prime Minister. He has taken on the role of Middle-East envoy working for the United States, Russia, the United Nations and the European Union. In trying to maintain his international role, and over come the many problems associated with being an ex-Prime Minister, has he over-reached himself?

It is probably true that there can be no peace throughout the Middle-East until such time as the rights of the Palestinians are confirmed and respected. Statehood for the Palestinians is now inescapable as a solution. It is equally true that yet more violence is not going to help either Israel or the now tragically divided Palestinians achieve what they most desire: peace; security; respect and prosperity. His wish to ‘advancing peace between Israel and Palestine’ is one first expressed in public many years ago. What are the advantages and disadvantages that Blair has with respect to the role of negotiator, mediator, and peace-maker?

Let’s start with the disadvantages. Blair is, for a start, seen as pro-Israeli. His support for Israel’s’ recent invasion of Lebanon did not help his standing in the region. His closeness to Bush (a personal as well as a policy decision) merely adds to the sense of bias. If he has generated some trust amongst the leaders of Israel this could be a plus. If he has the ‘ear’ of the President this again could be a plus though this advantage depends on whether or not any advice is listened to. And then there is the invasion of Iraq and his inability to admit either any personal mistake or to accept that there was inadequate political planning for the immediate post-war activities. This un-willingness to concede is a blind-spot and one that still rankles with people who might otherwise have given him the benefit of the doubt. He will have to work on his standing amongst politicians in the Arab world, and his recent publications built around ‘values’ and enlightened Arabic opinion may now be seen as the start of a charm offensive. Some of his past actions must all be a disadvantage as far as ordinary Palestinians are concerned. Ordinary people are not, however, directly involved in international diplomacy. His reception in the role will depend on the perceptions and interests of politicians on both sides whose cooperation he must win.

The journalist, Geoffrey Wheatcroft blasted (though partly tongue in cheek) Blair’s ambition to be envoy at the start of the week (see Guardian Unlimited). True, the idea of Blair becoming Peace Envoy looks at first sight to be a surprising idea. However, Blair does have many advantages that are worthwhile taking time to reflect upon. He has already bridged the political gulf between two communities divided by history, religion and allegiance. Many had labored in Northern Ireland before Blair but it was under his government that the devolved Parliament was restored and political cooperation at provincial level re-established. Getting opponents to trust each other is fundamental. Such work required highly-developed negotiating skills and a degree of sensitivity.

In addition, he knows how international politics work and what politicians are looking for and has the energy (his place in history is at stake) to pursue his objectives in such contexts with great effect. He put the issue of African debt relief on the map at the G8, for example, in a very special way. He has made ‘values’ in international life an issue. Blair, like it or not, has a way with words and a degree of personal charm. He likes to develop the big picture (think of the whole concept of ‘New Labour’) and can convince others of its validity. And he is, above all else, resilient (his years in office testify to that).

What he has to do is win friends and influence people, convert his weaknesses into strengths and build out from that. President Abbas is willing to cooperate: he will clutch at anything. Hamas may be willing eventually, because if not they are left potentially and enduringly stateless. The once embittered Ian Paisley, leader of the Protestant community in Northern Ireland and Northern Ireland’s first minister, wished him well in the House of Commons, linking success in his new post with his success in Ireland. The past history of the post of envoy is not good. This is a big gamble and has an air of unreality. On the other hand, with a wind in the right direction, Blair might just pull it off.

June 26, 2007

Gordon Brown and UK and world politics.

As Tony Blair steps down (or maybe side ways) Gordon Brown is now Britain’s Prime Minister. What do we need to know about him? What can be expected of him with respect to the United States and Iraq?

My American colleagues are often very curious about British political life. At the same time, it is clear that being unused to the notions involved in being a Parliamentary Democracy, they find a lot that is strange. Doesn't Brown have to be elected? No, he has merely to lead the majority party in the House of Commons. Gordon Brown is a Scot but isn’t there a Parliament in Edinburgh? The role of Scottish politicians in national life in Britain has always been important and remains very significant for the Labour Party. The Scottish Parliament (with devolved powers for much of Scotland’s domestic affairs) only slightly complicates the issue of the role of Scottish MPs in the British Parliament. Scottish members of the national Parliament can vote on English domestic affairs but Scottish domestic affairs are largely devolved and no longer subject to debate at Westminster. Brown has been careful to ensure that his Deputy is a woman and from the South of England. The United Kingdom has long been an historical and constitutional compromise and remains so. Balance is important. Brown went on record to say, before the Scottish Nationalists came to ‘power’ (they form a minority executive) in Edinburgh, that he would not work with them, but in this, as in other things political, he will have to. Before the Scottish election, Brown was willing to talk about ‘Britishness’, a subject that is confused and verging on the ‘dull’ side of political life. He is far from charismatic. This is not necessarily a fault as charisma can be self-regarding and even dangerous.

Gordon Brown is a Scot and what is more he is the son of the manse (his father was a Church of Scotland Minister). This background carries with it implications including hard work, seriousness (verging on the dour), intelligence and an additional sense that values have to be lived. His home town is Kirkaldy— famous for a number of things including its association with the Scottish Enlightenment economist, Adam Smith, who was also (surprisingly, perhaps to those who have never read the Wealth of Nations) a friend of the poor. The small-scale nature of Scottish political life means that Brown is reasonably well-known in his home town, where memories are long. He has only this week declared again that he is ‘a conviction politician’ and that helping the poor (both at home and abroad one presumes, given his record with respect to international aid and debt relief) is of special significance for the well-being of all. He is also an experienced politician and knows that many issues, including that of the continued development of the European Union, or living with the Scot Nats, require pragmatism as well as conviction.

Brown does not share Blair’s enthusiasm for President Bush. However he is pro-American, likes much about American values and has many personal friends in the United States particularly in Democratic Party circles. Commentators do not expect him to make any break with the Bush administration. The trans-Atlantic connection will continue to be significant in British political life but Brown is likely to bring a more critical edge to the relationship than Tony Blair was able to. He is someone who believes in the positive benefits of multilateralism (on debt; on Iraq; on Iran and on other issues) and of the need to link issues such as concerns about the Middle-East not simply with raw politics but with concerns about poverty and unemployment. He links such issues together as you might expect from an economist concerned about social justice. Multilateralsim has not exactly been a buzz word in Washington. Brown is likely to continue to be associated with the drive for economic development in the Commonwealth with particular reference to Africa (an area of concern to Tony Blair). His stand in Iraq will give a means of estimating what his relationship with the United States will be in detail.

Brown has been a good Chancellor of the Exchequer. but he will like anyone new to the office of Prime Minister have to learn the role. He has survived a relationship with Blair that has been difficult at times (Blair toyed with the idea of sacking him) which suggests honed survival skills. Will he make a good Prime Minister, an office that is likely to require a diverse set of personal and political attributes? Only time will tell.

June 18, 2007

Growing Income Inequality in America: Is China to Blame?

In this guest web-log, Jojo Jacob explores possible origins of the growing income inequality in the United States. What is responsible for the growing income inequalities between the rich and the poor in the US? Is globalization (read trade with China) the culprit here, or is it something else? In any case, income inequality has become a hot-button issue in the US, and we need to search for the right answers to the above questions.

While the standard trade theory tells us that free trade would leave low-skilled workers worse off, most economists believe - at least, they did until recently - that trade would have only a negligible impact on the earnings of the workers. But, just last week, Princeton economist and New York Times columnist Paul Krugman stated: “It’s no longer safe to assert that trade’s impact on the income distribution in wealthy countries is fairly minor. There’s a good case that it is big, and getting bigger.?

Krugman’s fear is due to two reasons: (1) given the fact that China has a vast pool of untapped (mainly low-skilled) labor force, it is unlikely that she will lose her comparative advantage in the production of labor intensive goods for a very long time to come - to quote Krugman again, “in 1990...the original four Asian Newly Industrialized Economies (NIEs) had hourly compensation costs that were 25% of the US level. Now ...China’s labour costs are only 3% of US levels?; and (2) the growing fragmentation of production: even in high-tech industries, such as microprocessor manufacturing, the low-value-added activities, like assembly and testing, are carried out today in low-wage countries.

Coming as it did from an avid advocate of free trade, Krugman’s worries about the harmful effects of free trade have already set off a heated debate, especially in the blogosphere. However, there are reasons to believe that Krugman could have got it wrong - at least until we have more evidence. Here is why.

First, comparing hourly compensation in the NIEs in 1990 and that in China today is misleading. A more relevant comparison would have been between the hourly compensation in the NIEs in the mid-seventies or early eighties (when these economies began to emerge as the leading net-exporters of labor intensive goods) with that in China today; by the 1990s the NIEs had almost become net importers of labor-intensive goods and China had replaced both Japan and the NIEs as the major net-exporter of these types of goods. Such a comparison would not likely yield dramatically different wage rate differentials between the NIEs and the US on the one hand and China and the US on the other. It is also conceivable that the fast-growing money wages in China will bring about greater balance in US-China trade in the near future (the money wage growth in China today is comparable to that in Japan during the 1950s and 1960s, when Japan was at a similar stage of development as China is today).

Finally, what is the nature of income inequality in the US today? As Thomas Piketty and Emmanuel Saez demonstrate in their 2006 NBER working paper, “most of the overall increase in the inequality of income has been driven by the very top of the income distribution …For example, the top 0.01% of earners paid over 70% of their income in federal taxes in 1960, while they paid only about 35% of their income in 2005?. They further point out that “the surge in top incomes [that is, of the top 0.1% of earners] since the 1970s has been driven in large part by a steep increase in the labor income component [(capital income was the major component of the total income received by the top 0.1% in the 1960s)], due in large part to the explosion of executive compensation?. Indeed the growth in executive pay over the last three decades has been staggering. As the “Executive Excess 2006? report by the Institute of Policy Studies, Washington D.C., reveals, CEO-worker pay gap has grown from 42-to-1 in 1980 to 107-to-1 in 1990 to 411-to-1 in 2005. The report also notes that “if the minimum wage had risen at the same pace as CEO pay since 1990, it would be worth $22.61 today, rather than the actual $5.15.?

In sum, many forces are at work here. And, mere China-bashing won’t help. Two issues worth consideration are the following: (1) making the federal tax system more progressive, especially at the level of the top 0.1% of earners, and (2) strengthening the trade union movement, and thereby improving the bargaining power of the workers.

June 14, 2007

Making economic globalization work in an equitable way.

Nobel Prize Winner in economics, Joseph Stiglitz has recently published a new book, Making Globalization Work (Norton, 2006). Joseph Stiglitz has worked extensively in the field of economic policy. He chaired Clinton’s Council of Economic Advisors and spent several years at the World Bank as chief economist. How accessible is the book and how useful?

Globalization is a tricky topic: the term can mean all things to all people. Stiglitz looks at economic globalization and sees it as problematic. On the one hand it holds the potential to improve the pace of useful economic development. On the other hand whilst it may under some circumstances lead to enhanced wealth, it rarely leads to enhanced social equality. It needs help and this requires, according to Stigliz, help at two levels. The rules governing international economic life need to be made more democratic, more transparent, with ‘fair’ trade seen as a means of generating freer trade. Also, within countries, policies must be created that foster a better and more equitable and sustainable pattern of economic and social development.

I have always felt that ‘globalization’ is a partial concept. It needs to be contextualized by the addition of ‘of what’. Stiglitz does this directly by limiting the focus to economic issues (in as much as that is possible: he is drawn into the issue of democracy, for example). It also seems to me to be a euphemistic term for much of the process is currently governed by free-market capitalism. Capitalism is good at innovation, change and income generation but it is not so good at the generation of equality except over the very long run. Policy is needed. The policy concerns to the critics of contemporary patterns of economic globalization are summarized by Stiglitz as five: rules governing the international economy are unfairly balanced in favor of the developed market economies; the process is materialistic rather than welfare-led; current globalization undermines sovereignty and democracy; claims that all will be winners are unrealistic; globalization currently implies American cultural imperialism. Stiglitz is nuanced about ‘market economies’: these come in many forms and the American model is but one of a possible range of models. Developing countries with sound administration and partly opened and partly closed economies can do well.

In essence the book explores in a number of different ways— using lots of examples from all around the developing world— the five key topics identified at the outset. It is not possible to give, in a short review as this perforce must be, a range of examples. I will quickly survey the notion of making trade fair.

Stiglitz does not reject the idea of a global market place. His concern is that the global market place needs to be operated fairly. Developed market economies are ‘in charge’ of the institutions. ‘In part’, says Stiglitz ‘free trade has not worked because we have not tried it’. He cites the NAFTA as an example that ought to have worked but has not because of the ‘asymmetric’ terms that were applied to Mexico with respect, for example, to US maize subsidies. This benefits city-dwellers who get cheaper maize (solving, I suppose, a problem for the political authorities concerned about stability) but leads to devastation amongst Mexican maize farmers. NAFTA lacks sophistication as a result (presumably) of Mexico’s inability to put forward countervailing arguments during trade negotiations. Everyone misses out from this for if Mexico does not grow rapidly then more people are forced into illegal migration to the United States. I recommend his brief account of the NAFTA. It is clear and to-the-point.

Stiglitz is very good on the question of agricultural subsidies and how it distorts the development of an international market in agricultural commodities—the current and stagnant Doha Round was meant to help sort some of the problems out. Did you know that the total subsidies applied to agriculture in the United States, the EU and Japan amounts to ‘75%’ of sub-Saharan Africa’s income? African farmers (with some exceptions, I would add, such as cattle-owners from Botswana) find it hard to compete internationally and even at times on their own domestic markets. We need to know this as citizens. Why do we do this? Would we support the Farm Bill if we knew? It is little wonder that people are migrating from sub-Saharan Africa to Europe.

This book deals with a complex set of issues in a highly accessible way. It operates globally and thematically but it also examines lots of particular problems (and solutions) in particular places. Stiglitz does not reject globalization. He wishes to reform the process. There is much in this that is worth thinking about.

June 8, 2007

Tony Blair and his reflections on lessons learned from his ten years as British Prime Minister.

Tony Blair recently has published in the Economist (June 2nd 2007) a piece entitled ‘What I’ve learned’. This is addressed to an international audience. What did he learn (and at what cost)? How are we to evaluate his message? We can all learn from experience but do we always learn the right lessons?

Blair’s main theme, elaborated in the introduction to the article, is that the world has fundamentally changed. He holds that he could not have predicted the change at the start of his term in office. He is clear about a significant source of the change: ‘Economies are shaped by forces of globalisation’. This entails: migration on a significant scale; climate change; changing power relations as China and India sustain their economic growth; the blurring of the lines between domestic and international policy. In this global context foreign policy is part and parcel of domestic policy: ‘What happens today in Pakistan matters on the streets in Britain’. (This is true but it was also predictable: amongst the many citizens who protested against the War in Iraq before it happened were large sections of the Muslim community.) This interdependence has further implications for Blair. Global communications means that ‘struggles are fought as much through propaganda, ideas and values as through conventional means, military or diplomatic’. This is a key notion in his ‘analysis’.

Blair’s reflections on this, in as much as international policy is concerned (he also reflects on the domestic political scene in the UK), are six in number: the UK needs to be player rather than a passive spectator; the Transatlantic Alliance is essential; global terrorism is real and needs to be examined with clarity; Western values must be maintained and defended (Blair tends to mean the sort of universalist values that have their origins in the Enlightenment); we need to envisage values for the new world that is emerging.

Given space limitations I will only deal with two items from the list: the UK’s role and global terror.

Most people would accept that the UK as a leading financial and economic centre needs to be internationally engaged. It is however possible to question the nature of that engagement. Blair has dedicated himself to putting aid to Africa and to putting African stability into focus. This is good. He robustly defends (yet again) his position in Iraq and Afghanistan. Perhaps he should reflect on the views of Thomas Aquinas who argued that it is right to overthrow a dictator provide that in overthrowing such a person you do not do more damage than there would have been had you not intervened. A case against the War in Iraq is that the consequences were not thought through and planned for. This is a failure of responsibility, of values even: a theme central to Blair’s pro-active arguments. It is a pity that his learning in his respect is not more nuanced.

Blair remains convinced that at the root of international terror is an ideological struggle between the values of progress and those of reaction. This ideological struggle is central to his theme. He believes that the ideology ‘is based on an utter perversion of Islam’ but that it plays on genuine grievances in the Islamic world. He is, I think, correct. His notions with respect to the particular manifestation of a terrorist problem (what we could call particular problems in particular places) as presented in the article as limited in scope: he blames extremists, for example, for holding up progress in Iraq. We need to be careful about any ‘good people/bad people divide’: as it is not an analysis it does not readily tell us what to do. Where is the reflection on the sense of an army of occupation and of a repeat of colonialism? Where is there a reflection on the failure of Western values in the context of Iraq? We always need to solve particular problems in particular places. Over-simplification has its uses but not here. Gandhi was once asked what he thought of Western civilization. Gandhi’s response was along the lines that that indeed would be a good idea. It is correct to put values at the centre. The problem is that of maintaining them. The West all too easily slips into a somewhat transparent self-interested mode.

The Economist is a leading, some would argue, the leading international weekly on global economics, politics and business. Tony Blair had already published a piece in Foreign Affairs (see ‘Blair and the battle for global values’ on this site) so it is clear that he is setting out his stall with respect not only to his period in office but also with respect to his future. He may not be continuing in high political office in the UK but his political interests and advocacy are going to be continued. Having stepped on to the world scene, Blair looks as if he is going to continue to defend his position on global terrorism. The Economist makes no direct comment on Blair’s article but, rather, publishes a picture of a weary and disappointed Blair at the head of the article. This is in contrast to the dynamic image presented on the next page. The message here is difficult to interpret: older and also wiser, hence a statesman, or essentially yesterday’s man?