The clash within civilisations

 
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This year marks the 20th anniversary of the clash of civilizations theory, but Samuel P Huntington was wrong.

Thursday 28 March 2013

A decade has passed since the blood-drenched invasion of Iraq began, unleashing a wave of destruction not seen in that part of the world since at least the Mongol sacking of Baghdad in the mid-13th century.

Unsurprisingly, the 10th anniversary has prompted immense media attention, in the United States and Europe, as well as in Iraq itself and the broader Middle East. In light of the carnage that has ensued following that fateful decision to invade, a lot of the public debate has focused on whether the war was justified and worthwhile.

The cheerleaders of the war argue that the invasion was just, the subsequent carnage was an unfortunate but collateral consequence of a benign act of goodwill, and that errors were made in the execution of the campaign but the principle was essentially sound.

Critics, like myself, see the wholesale destruction of Iraq and the chaos besetting it – which was chillingly illustrated by the deadly car bombings which rocked Baghdad on the 10th anniversary – as clear proof that the US-led intervention was not only unjustified but flawed.

In order to understand why, we need to rewind another 10 years, back to another important anniversary which has largely fallen under the media’s radar. Through some fluke of history, the theory which largely justified the Iraq war and provided it with its ideological underpinning was formulated exactly a decade earlier.

In an incredibly influential essay published 20 years ago in Foreign Affairs, the late Samuel P Huntington first outlined his clash of civilisations theory, which he later elaborated on and fleshed out in a book published in 1996.

Huntington argued that “the fundamental source of conflict” in the post-Cold War era would be not ideological or economic but “cultural”. “The clash of civilisations will dominate global politics. The fault lines between civilisations will be the battle lines of the future,” the Harvard professor argued.

Huntington divided the world into some half a dozen major civilisational groups which, he posited, would clash at two levels: local “fault line conflicts” where civilisations overlap and “core state conflicts” between the major states of different civilisations.

On the 20th anniversary of this controversial theory and given how influential it has been and remains, it is useful to analyse whether or not Huntington was right. Has a clash of civilisations emerged, as Huntington predicted, over the past two decades?

Supporters of Huntington’s hypothesis answer with an unequivocal “yes”. They point to the inhumane atrocities committed in the United States by Islamic extremists on 11 September 2001, the subsequent clash with al-Qaeda, the wars in Afghanistan and Iraq, as well as the rise of Islamist parties during the “Arab Spring” as confirmation that a clash is underway.

Critics, like the scholar Noam Chomsky, have maintained that the clash of civilisations is simply the symptom of an empire, i.e. Pax Americana, in search of another justification for its imperial aspirations after the Cold War paradigm fell apart with the collapse of the Soviet bloc.

The late Edward Said, the renowned author of Orientalism, saw in Huntington’s theory an extension of the pseudo-scientific Orientalist scholarship which had been used for at least a couple of centuries to justify European and Western hegemony. In an essay entitled The Clash of Ignorances¸ published shortly after 9/11, Said argued that Huntington ignored “the internal dynamics and plurality of every civilisation” and “the fact that the major contest in most modern cultures concerns the definition or interpretation of each culture”.

Personally, I find that, though the idea, in one form or another, of a clash of civilisations is as old as the hills – examples include the historical notions of jihads and crusades, not to mention the idea of “civilisation” versus “barbarity” espoused by most dominant powers throughout the centuries – this does not make it any more valid or true.

Far more often than not, what has been dressed up as a clash of values is really just a clash of interests parading as something less selfish than it actually is. Although culture and ideology can, on rare occasions, lead to conflict, for the most part, societies enter into conflicts due to clashes of interests.

And in such a context, proximity is traditionally a far greater cause of friction than culture. That is why conflicts within self-identified cultural or civilisational groups are often greater than those between them. Over the centuries, Christians and Muslims have gone to war and killed more of their coreligionists than each other, as the carnage of two world wars in Europe shows all too clearly.

That would explain, for instance, why the United States decided to invade Saddam Hussein’s secular Iraq, even though it was a sworn enemy of al-Qaeda and jihadist Islam, yet is bosom buddies with Saudi Arabia, the hotbed of reactionary Wahhabism, which it exports around the region and the world, and the home of most of the hijackers who took part in the 11 September attacks.

And alliances which cut across supposed civilisational lines have an ancient pedigree. Examples include the Arabs allying themselves with the British and the French against the Turks, or the Ottomans fighting alongside the Germans in World War I against the British, French and Russians. In fact, throughout its centuries as a major power, the Ottoman Empire’s alliances shifted between various Christian European states, including France, Poland, as well as the Protestant Reformation against the Catholic House of Habsburg.

Moreover, Huntington’s hypothesis is further undermined by what I like to call the “mash of civilisations”. Each so-called civilisation is actually a volatile, constantly changing hybrid of ideas and cultural influences.

In fact, if we must group civilisations together, then I would place the West and Islam in the same group because they both share common roots in the Abrahamic tradition, not to mention the Greek and Hellenistic, Mesopotamian and Egyptian influences, as well as the modern importance of the Enlightenment, not just for Western reform movements but also for secularising and modernising movements in the Middle East. I would go so far as to say that Europe and the Middle East, especially the Mediterranean countries, have more in common with each other than they do with their co-religionists in Africa and further east in Asia.

So, if there has not been a clash of civilisations, what has emerged since the end of the Cold War?

At one level, there are the brewing clashes of interests between the great powers, as America tries to hold on to its waning global reach, Russia tries to claw back the influence it lost following the implosion of the Soviet Union and China, after years of quiet growth in the background, begins to flex its muscles on the foreign stage, both to advance its emerging “strategic interests” and for prestige.

On another level, cultures have clashed, but not between civilisations, as Huntington believed they would, but within them. This clash within civilisations is currently playing itself out most visibly in the Middle East.

In addition to the sectarian monster unleashed by the anarchy in Iraq, the revolutionary wave that has swept through the region has brought to the fore, and into sharp relief, the major fault lines and clashes within each society and, to a lesser extent, between them. There are the conflicts between the secular and religious, between majorities and minorities, between women and men, between the young and old, between modernists and traditionalists, between the haves and have-nots, and so on.

Although less pronounced, at least for the time being, these same internal tensions are being witnessed in the West, as reflected in the rising influence of Christian fundamentalism in the United States and the extreme right in Europe, as well as the large-scale social protests, from years of street battles in Greece to the Occupy Wall Street movement of the “99%”.

In Europe, particularly, class conflict is intensifying on the back of the economic crisis triggered by neo-liberal excess, as the poor and middle-classes are forced, through bailouts and austerity, to finance what has effectively become a welfare state for the rich. This is putting in jeopardy not only the much-vaunted European social model but also the EU enterprise itself.

If the European Union is not reinvented along more equitable lines and emerges out of this crisis, instead, much weakened, then it will likely leave a petty-nationalistic sized hole in the European arena which could eventually cause the conflicts currently taking place within individual countries to spill across borders.

In the second decade of the 21st century, a major challenge facing us all is not the clash of civilisations but the clash within civilisations. This internal cultural struggle is largely caused by the growing socio-economic inequalities that have emerged in just about every country in the world.

If these inequities are not addressed effectively, at both the local and global levels, then intolerance will grow and conflicts will continue to consume individual societies, with the danger that they will spill over into other countries, potentially spiraling out of control.

___

Follow Khaled Diab on Twitter.

This article first appeared in The Huffington Post on 21 March 2013.

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From right to far-right in Spain

 
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By Andrew Eatwell

Why is there no prominent far-right party in Spain? Well, there is and there isn’t.

1 August 2011

It is a question that gets asked every time the extremist right goes on the rise elsewhere in Europe. Typically, the response from Spaniards, especially those on the left, comes as a half-joke, half-truth: “There is,” they say. “It’s the People’s Party,” comes the punch-line.

The truth is that the People’s Party, which brands itself as a conservative centre-right force similar to Britain’s Tories or Germany’s Christian Democrats, does have its roots – at least historically – in the ashes of General Franco’s fascist regime. Its 88-year-old founder and honorary chairman, Manuel Fraga, was a former minister in Franco’s government and several of the party’s prominent members are relatives of regime figures. But that’s all old history. And, all jokes apart, only the most extreme leftists would seriously describe the modern PP as a far-right party.

Spain’s history, and memories of the repression that existed until Franco’s death in 1975, make the far-right less appealing to Spaniards than voters in other countries. Therefore those Spaniards who worry about the right’s traditional pet peeves, such as immigration (a growing majority) or Christian and family values, and who might vote for far-right parties were they in another European country, tend to vote for the mainstream PP in Spain.

That is likely to be the case come November, with the PP looking likely to win a landslide victory in early elections as voters turn against the Socialist government, blaming it for the economic crisis that has given Spain the highest unemployment rate in Europe at more than 20%.

Immigration, that bugbear of right-wingers everywhere, will certainly be one issue in the election. One recently published report noted that between 2004 and 2008, the number of people who thought Spain’s immigration policies were too lax rose from 24% to 42% – and that was before the economy completely stalled. Half the population thinks that the presence of immigrants lowers the quality of social services, specifically health and education, and it is widely believed that they take jobs that would otherwise go to Spaniards.

The PP has certainly tried to stir up the immigration issue to its benefit, but there are signs that some people feel the PP is not – and will not – take a hard enough stance on the issue. As a result of unemployment and the economic crisis, for the first time, more radical parties are gaining a foothold. 

In local elections in May in the wealthy northeastern region of Catalonia, a far-right xenophobic party, Plataforma per Catalunya, sprung out of almost nowhere to win 65,000 votes, returning 67 councillors, 50 more than in the previous elections.

Its campaign featured a video showing three attractive young women in miniskirts skipping with a rope in the city of Igualada to the accompaniment of a traditional Catalan folk song. Suddenly, the image changes to “Igualada 2015″ and shows three women dressed in burkas skipping to the rhythm of an Arab song. 

The party, led by Josep Anglada, a former disciple of fascist figure Blas Piñar, espouses the kind of anti-immigrant rhetoric more commonly associated with the likes of France’s National Front or the British Nationalist Party. It is now a major player in Catalan politics.

If anti-immigrant sentiment continues to rise, it is possible that other extremist parties in other regions – and even nationally – may see gains like those of Plataforma per Catalunya, and the old joke about Spain not having a far right may no longer hold true.

This article is part of a special Chronikler series on far-right extremism. It is published here with the author’s consent. ©Andrew Eatwell.

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The rise of far-right politics on both sides of the Atlantic

 
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On KALW’s weekly media round table, Khaled Diab took part in a radio debate on the rise of far-right politics on both sides of the Atlantic following the ‘Tea Party’ victory in the United States.

This week, KALW’s Media Round Table discussed coverage of the US mid-term elections. What role did the media play in shaping the conversation about the elections? The programme also talked about rise of right-wing political parties in Europe.  Your Call iq hosted by Rose Aguilar.

Guests:
Arthur Delaney, reporter with The Huffington Post

Khaled Diab, a journalist and writer who works in the Belgian and EU capital Brussels. He writes a regular column for The Guardian and also freelances with other publications.

Davey D, a nationally recognised journalist, syndicated talk show host and radio programmer with Hard Knock Radio on KPFA

Listen to the Media Round Table

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Making globalisation pay

 
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By Khaled Diab

Big corporations are using the banking crisis as an excuse for exploiting cheap labour. Is it time for a global minimum wage?

4 February 2010

For beer lovers, Belgium is the nearest place to heaven on earth. The country’s 125 or so breweries produce an estimated 800 standard beers, each of which is served in its own distinctive glass. This mushrooms to nearly 9,000 when special editions are included.

Given this ocean of booze, you would expect that the temporary loss of a handful of beers would cause hardly a ripple. In a country where beer receives the kind of appreciation reserved for wine in other cultures, the recent threat to supplies of some of Belgium’s favourite tipples captured headlines and caused distress.

The “Beer Crisis”, as it became known, was caused by striking workers blockading three breweries owned by the world’s largest beer giant, AB InBev, which, among other things, produces the popular but bog-standard Stella Artois and the more upmarket Abbey beer Leffe.

The immediate cause of the blockade was AB InBev’s plans to trim its Belgian workforce by 300 (with another 500 to be scrapped in the UK, Germany, the Netherlands and Luxembourg), ostensibly because of falling beer consumption in western Europe.

Despite the inconvenience to the beer-drinking public, most Belgians are sympathetic with the strikers. “We’re with the strikers,” declared one regular at a café in Halle. “If the beer flows dry, that is only a relative problem.”

This is because, InBev (previously known as InterBrew), though it is admired for raising the global profile of Belgian beer, has become infamous for its cavalier attitude towards its workforces, which have endured several ‘restructurings’ in recent years to cut costs, while the management pays itself lavish bonuses, engages in expensive prestige acquisitions (such as the US makers of Budweiser), and exports jobs to countries where labour is cheaper.

Faced with this public relations disaster and the loss of market share to smaller breweries, InBev’s management has backed down for the time being and the blockade is being lifted.

Workers at the nearby Opel plant in Antwerp have not been so fortunate. Despite an offer of a €500 million bailout from the Flemish government, and voluntary pay cuts agreed by the unions, troubled US car giant GM has decided to close the 85-year-old Antwerp plant, axing 2,600 jobs in the process. The decision is all the more puzzling because the plant still turns a healthy profit.

It seems that InBev and GM are taking advantage of the current financial crisis. Both are shifting jobs to countries where labour is cheap, while GM seems to be subsidy shopping and has successfully pitted the German government against the Belgian government.

And they are not alone. With their massive revenue streams and the mobility to shift their assets rapidly, countless multinationals have used globalisation to hold governments to ransom and stack the global trading system unfairly in their favour by ‘outsourcing’ their operations to so-called low-cost countries while selling their output in higher-cost wealthy countries.

So what can be done to curb this kind of corporate excess and greed and put a brake on this undignified race to the bottom?

One idea could be to develop an international minimum wage and integrate the concept into the architecture of the World Trade Organisation, especially since the Doha round of trade talks is ostensibly aimed at triggering sustainable development. What could be more sustainable for the global economy than affording all workers a decent income?

But, even assuming that WTO member states can muster up the political will to set such a global standard – after all, both rich and poor countries would have their own reasons for opposing it – attempts to set an international minimum wage would face umpteen practical hurdles.

For example, if you set it as an absolute amount, what would you take as your reference? Universalising, say, western European levels would be unaffordable for developing economies and unfair to European workers who have to contend with some of highest costs of living in the world.

Instead, we could determine a minimum standard of living to which all workers should be entitled and use that to calculate a fair wage for each country using purchasing power parity. However, given the magnitude of global income disparities, this would disadvantage local companies in poorer countries who, compared with multinationals, do not possess the resources to pay such wages – nor can the domestic markets they cater for absorb the extra cost.

So, until we have true global economic convergence, it would be far better to start the process of fairer trade at home, and more strictly regulate our multinationals. Today’s giant corporations are often likened to small countries. However, there are important differences: they are not tied down by geography and, given the paucity of international regulations, they can get away with practices that would be considered unscrupulous or even illegal in their home territories.

Just as the vast majority of developed economies from which most multinationals hail have minimum wage systems in place, it’s time global corporations were made to apply similar practices in their overseas operations in poorer countries.

In addition to an absolute rock bottom wage which they cannot go below, multinationals should be obliged to implement an indexed salary system in which workers in their overseas operations cannot earn less than, say, half of what a worker doing a similar job in their home territory earns.

Complaints are bound to be heard about how this interferes with the efficient functioning of the free market. But I doubt CEOs and top managers would be so blase if it was their own jobs that were to be outsourced. I’m sure India and other developing countries are teeming with intelligent, capable entrepreneurs who could probably do a better job than many of our current crop of avaricious business leaders, and at a fraction of the cost.

Besides, the free market already functions inefficiently – the rich domestic markets of multinationals are still quite well-protected fortresses. And, though we may have freer movement of goods and services than in the past, the movement of labour is severely restricted. In a truly free market, workers would go where the best-paying jobs are, rather than the jobs going to where the worst-paid workers are.

More importantly, at its core, economics is about human wellbeing and if free-market orthodoxy fails to deliver on this, then something needs to be done to balance efficiency against ethics.

This column appeared in The Guardian Unlimited’s Comment is Free section on 31 January 2010. Read the related discussion.

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Huff and puff brought the economic house down

 
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By Christian Nielsen

How the Mr Bigs and their biglettes unwittingly (or not) brought down the world’s economies – and the hotly contested prize for ‘America’s worst investor’.

5 October 2009

Two stories in The Economist have more in common than perhaps the magazine intended. One, accusing the MBA factories of doing little to mend their habit of churning out ever-smarter greedy buggers. The other, announcing a Golden Raspberry-inspired prize for the worst small investor in the United States.

I’ll deal with the MBAs first. But before starting, I must confess to having a Belgian derivative of this certificate. It never did me any good, bar an excuse to stay in the country. But the Mr Bigs of MBAs – I’m talking about the likes of London Business School, Harvard Business School (HBS) and others on the yearly ‘best MBA’ courses list – deliver a cohort of big achievers year on year, at a not inconsiderable cost to the students or their organisations.

These Mr Bigs and their biglettes have done sweet f-all to mend their Gekko-esque educational model moulded round the mantra that “greed is good for everyone, especially me”.

The bankers have, at least in principle, been stripped of their pinstripes and, if France gets its way, their future fiduciary roar as well. But until I read this trumpeting repost by Schumpeter (‘The pedagogy of the privileged’), I hadn’t considered the degree of culpability that the elite education machine should perhaps also bear. He says these institutions of learning have been “churning out jargon-spewing economic vandals”, the likes that lined the executive tables of such feted organisations as Enron, Lehman Brothers and half of the Wall Street walkers now offering good CV and an ego-massage to anyone who‘ll now listen.

Yes, blueprints for betterment have been drawn up by some of these fine establishments, The Economist says, but little has emerged of note. No, wait, HBS has introduced a voluntary pledge “to serve the greater good” and a group of Harvard students have set up an oath of “responsible value creation”, according to BusinessWeek’s website.

(Makes you wonder  if that ‘greater good’ is of the kind you would hear espoused at a GOP rally: ‘make shit loads of profit and let the rest take care of itself’. Sound familiar?)

So, if the bankers are going to be made to pay – just a little, and even that isn’t a given because, like a mugging, as the economy starts to show signs of improving, it’s easier to forget the trauma – why not the manufacturers of the greed-is-good method of wealth creation?

Perhaps business schools could start teaching history as well, it was suggested, to remind graduates that the laws of gravity work for money markets too. Taking a knife to the climate of “boosterism” – puffing up the models and methods of certain businesses, people or consultancies – prevailing at some business schools was also put forward as an antidote to acolyte-building academia.

“Business schools need to make more room for people who are willing to bite the hands that feed them: to prick business bubbles, expose management fads and generally rough up the most feted managers,” Schumpeter concluded.

Perhaps we need a matrix to help explain this. Any bright MBA grads want to help us out with that?

Spurious connection

I’m going to make another confession; I didn’t really have a strong ’connector’ for this second story. It just sounded like a really fun idea to highlight: the folly of investment-envy and the slavish adherence to the sort of MBA-inspired confidence that drove people to think they were on to a winning investment strategy for ever.

With some careful analysis, you could probably make a fair case for one relating to the other, but I don’t have the smarts for that – my MBA was a bottom-shelf affair.

The deadline to apply for the ignominious title of ‘America’s worst investor’, the contest organised by Hedgeable.com, is 12 October. Don’t miss this train too! With no shortage of contenders, this is an admirable effort to poke the wounds of this year’s economic fiasco, and perhaps in doing so, remind us that even smart people can make some dumb decisions.

Read Reuters Blogs for some commentaries on how some small and medium-sized American hedge funds and asset managers got their clients (a lot of them retirees) in the hock with exotic derivatives.

Watch this space for expert commentary and sharp(ish) analysis on the winning losers.

Side note: Chronikler would be happy to publicise any effort to set up a ‘Europe’s worst investor’ prize. The Americans are offering the winners – I mean losers – trips to Rome, Las Vegas and Iceland, all home to decent collapse some time in the last 2000 years. Perhaps the European winners could win a trip to Wall Street or the City. Just a thought.

©Christian Nielsen. All rights reserved

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Introducing equanomics

 
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By Khaled Diab

Governments need to rethink their economy policies to make them more equitable and responsive to citizens’ needs.

January 2009

Reading the business pages is like wading through a nuclear wasteland littered with ‘toxic assets’. Gordon Brown is now working to limit the damage from this radioactive debt with a multi-billion pound safety net for the financial system. This, along with the hundreds of billions the government has already pledged, not to mention the tens of billion it has already spent, has sparked warnings of possible bankruptcy for the UK.

Since it rippled out from the subprime scandal in the United States, the global financial crisis has seen taxpayers exposed to mind-boggling liabilities, potentially counting in the trillions. While the financial sector sends the wider economy into a recessionary tailspin, what have the architects of the disaster been up to?

Rather than face paying the price for the ruin they have visited on others, top executives have been giving each other golden handshakes before donning their diamond-encrusted parachutes and leaping out of the blazing wrecks they have left for governments to keep airborne with both engines burning.

But even in the United States, it seems that people have lost patients with the executive caviar train. Last week, the Senate said it would not approve any more bailout money without strict limits being imposed on executive pay.

The brewing outrage is hardly surprising when you consider that, as millions face the prospect of the dole and losing their homes, top managers are sitting pretty and laughing. Take the Merril Lynch executive who got $25 million for three months work or, on this side of the Atlantic, the €4 million payoff received by the former chief financial officer of Belgian-Dutch Fortis Bank, which benefited from a government bailout to the tune of €11.2 billion.

Even George W Bush, a leading cheerleader of neo-liberal economics who has probably done more than any other president to fatten the bottom line of corporate America, has been making ominous threats. “Anyone engaging in illegal financial transactions will be caught and persecuted,” he recently said. Appalled as I am by the exuberant excesses at the top, as a strong believer in human rights, I cannot tolerate talk of persecution.

What needs to be done is not only to limit executive pay in banks receiving government bailouts but across the board. We need a general cap on earnings, which would be high enough to provide an incentive for people to perform and strive but low enough to prevent major economic injustice.

But that, in itself, is not enough. We need to rethink our approach to the economy and herald in a new age of what I call equanomics, where the success of an economy is judged by how well it improves citizens’ well-being, narrows the gap between them, and truly provides them with equal opportunities.

At present, there is too much of a tendency to regard the economy as somehow existing outside of society. But this false separation has led policy-makers in many countries to put the interests of the market ahead of the interests of the people. Equanomics would remove the false barriers between the economy, markets and society, and social indicators – such as quality of life, education and health – would count as much as macro- and microeconomic indicators.

In addition to maximum and minimum limits on income, under equanomics, salaries would be determined not only according to a job’s market value but also its social worth through, say, an impartial index which draws on the views of experts and the general public to assess the social value of different jobs. Of course, this might mean that top executives will be taxed extra to raise the pay of nurses.

Some will argue that only free markets can create the wealth needed to improve people’s lives and that communism only succeeded in impoverishing societies in its quest for equality. I am not advocating the imposition of a communist dystopia, but the sort of enlightened blend of socialism and capitalism that served Europe well in the post-war years and has helped Scandinavia to have its cake and allow the majority of citizens to eat it.

Besides, free market capitalism has failed dismally to create the utopia it promised. Despite the laudable talk of equal opportunities, economic disparity robs millions of the opportunity to shine and succeed. For example, an upper-class boy in the UK is 30 times more likely to land a top job than a boy from the unskilled working class. Contrast this with the countries with the highest social mobility, such as the Nordic countries and Canada, which also happen to be the countries with the lowest inequality. This means that there can be no equal opportunity without greater economic equality.

The free market, as we currently know it, is actually not an ‘invisible hand’ that dispenses impartial economic justice. The big players, from oligarchs to dominant or pseudo-monopolistic corporations, have a massive distortionary effect on the efficient functioning of the market.

This is reflected in the rapidly rising levels of global income and wealth inequality, which has led the UN to sound the alarm on the possibility of widespread social unrest, not only in developing countries, but also in the United States, Britain, Spain and Greece (which was recently plagued by riots).

In the UK, since income disparity rose at unprecedented rates in the 1980s, those Thatcherite levels of economic inequality have been perpetuated, with the super rich racing even further ahead, the middle classes getting a modest piece of the action, and the lowest income groups being left behind to eat everyone else’s dust.

Of course, given the fact that multinationals are of a size to rival small, prosperous nation states and the financial markets can punish governments for stepping out of line, the need for coordinated intergovernmental action has become all the more urgent. In this regard, governments can harness the power of the EU and other regional blocs, and even reinvent the World Trade Organisation, to make globalisation fairer and more equitable.

The current crisis risks deepening the wealth gap, as millions in the middle and lower income brackets face the prospect of imminent unemployment and pay cuts, while government funds are exhausted underwriting the welfare of the wealthy. We need governments to put equanomic principles at the heart of their policy if we are to avoid widespread social conflict and enhance socio-economic justice.

This column appeared in The Guardian Unlimited’s Comment is Free section on 19 January 2009. Read the related discussion.

This is an archive piece that was migrated to this website from Diabolic Digest

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Trouble in the Baltic

 
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By Khaled Diab

The turmoil submerging Latvia is an example of ‘drizzle-down’ economics in action and has implications for the rest of Europe.

February 2009With a population of just over 2 million and a GDP about the size of the Bank of America bailout, the tiny Baltic state of Latvia does not make the headlines very often.

While attention is distracted by the deafening popping of bubbles in larger economies, Latvia has been imploding dramatically in one of the world’s most extreme versions of ‘bubblenomics’. The latest chapter in Latvia’s unnoticed turmoil occurred this weekend with the collapse of the Latvian government.

Prime Minister Ivars Godmanis, who led the march to independence but has been embroiled in corruption allegations, was forced to resign. This makes Latvia the second European country, and first EU member state, to lose its government as a result of the global economic crisis. Although Latvia has been through about a dozen governments since independence in the early 1990s, this time the public mood is very different.

The day before the collapse, disgruntled citizens of Latvia’s second city Daugavpils, borrowed the (by now) world famous Arab insult, immortalised by Iraqi journalist Muntadar al-Zaidi, and hurled shoes at images of the country’s parliament, the Saeima.

This was the culmination of weeks of turmoil and civil unrest, which peaked with mass peaceful demonstrations – which descended into rioting – in January.

“I’m surprised it’s taken so long to get to this point,” said one protester at the January demonstrations, accusing politicians of “robbing” the people for years. This scepticism and pessimism is a far cry from the hopeful psychological crescendo of the Singing Revolution.

“Latvians are not given to protests or public displays of any sorts, [so] their recent actions indicate the gravity of the crisis,” observes Jeffrey Sommers, a professor of economic history at the Stockholm School of Economics in Riga, the Latvian capital.

And their frustration is easy to understand. The economic crisis has hit Latvia harder than other EU states. In the final quarter of 2008, the country’s economy contracted by a staggering 10.5% and, the ‘Alice in Wonderland’ shrinkage is expected to chop 12% off GDP in 2009, while unemployment, already high, is expected to rise by another 50%.

Until last year, Latvia, with the fastest growth rate in Europe since 2000 (reaching nearly 12% in 2006), was trumpeted as the plucky little ‘tiger’ among the older EU turtles. However, the figures were illusionary in that some of the growth was really a case of climbing back from the 1990s crash. Moreover, its economic boom was based largely on a property bubble and reckless financial speculation, while macro-economic reforms imposed by the World Bank and IMF pushed resource-poor Latvia to dismantle most of its industrial and productive capacity.

Like its neighbours and other former Soviet bloc states, ‘free market’ reforms have largely benefited politicians, a select oligarchy of entrepreneurs with massive political clout and foreign corporations. Rather than ‘trickle down’, Latvia has experienced what could be called ‘drizzle down’ economics in which the few enjoy the sunshine years while the many endure the economic storms before and after.

The immense financial crisis in Latvia prompted the IMF and the EU to offer Latvia a €7.5-billion rescue package in late December. However, the strings attached make clear that this is exclusively a bailout for banks and offers no relief for ordinary Latvians.

In fact, at a time when western economies are raising public expenditure to Keynesian levels, the most hard-pressed Latvians will be expected to pick up the tab through painful austerity measures.

But it’s not just foreign pressure that’s unlikely to bring change. “A new government will likely keep similar economic policies in place,” expects Sommers. “Many privileged Latvians, especially politicians, benefited from the asset inflation in real estate. Many speculators took out loans in euros and they would be hurt by a devaluation of Latvia’s grossly overvalued currency.”

With other central and eastern European countries tottering on the brink of an economic abyss, capitals in western Europe are seeing a different kind of ‘red threat’ coming from the east.

New battle lines are emerging between ‘old’ and ‘new’ EU member states. As the EU’s big four – Germany, the UK, France and Italy – gathered in Berlin, the Union’s eastern member states revealed plans to hold their own mini summit.

“We want to send a clear message that we support the European Union’s position in favour of defending the common market and that we are against protectionism,” said Poland’s Europe minister, Mikolaj Dowgielewicz, in response to aid packages unveiled in France, Spain and Italy to help their domestic automakers.

For its part, Brussels insists that the EU can weather the storm. “Europe is equipped to help the weakest economies,” said Economic and Financial Affairs Commissioner Joaquín Almunia.

The trouble is that, while funds seem to be quite readily available to bail out the financial sector, little of this has trickled into the real economy. EU governments need to find mechanisms for directly stimulating the economy and boosting employment perhaps by channelling funds directly to SMEs.

Excessive protectionism could well hurt Europe, but the single market needs to be complemented with robust common labour standards, as well as an increase in or more effective use of solidarity instruments, such as the structural funds.

This column appeared in The Guardian Unlimited’s Comment is Free section on 25 February 2009. Read the related discussion.

This is an archive piece that was migrated to this website from Diabolic Digest

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