Economic stragulation of Haiti created legacy impacts still felt today

I have often wondered to myself precisely why Haiti has been an economic basket case for soooo long, unique among its prospering Caribbean neighbors and even to its island neighbor, the Dominican Republic. A foreign policy blog colleague, Sean Goforth, wrote a terrific piece recently, titled ‘The Bifurcation of Hispaniola,’ putting into perspective some – but not the primary – exigent factors that have impacted Haiti’s long stagnated development trajectory.  Similarly, ‘The Week’ magazine did an excellent piece last week that went even further in putting into context some of the historical and economic forces that have adversely impacted the once prosperous island nation. You can read more on that here.  And, of course, we’ve all heard wildly inaccurate reports about Haiti’s historical 1791 ‘pact with the devil’ at Bois Caimon – Pat Robertson’s comments notwithstanding. There are many rational reasons explaining precisely why Haiti is so poor, as The Week’s article and Sean Goforth amply show in their historical analysis. I think, then, we can safely dismiss the pact-with-the-devil theory as the root cause of Haiti’s anemic development.

More to the point, I was jarred when I received a dispatch , titled ‘The Hate and The Quake,’ about the sordid history of Western economic embargoes against Haiti from a professor of Caribbean history at the University of the West Indies, Sir Hilary Beckles forwarded to me from a friend, Yvette Roper, an energy infrastructure professional whom I’ve known since my first semester of college. Her e-mail about Beckles was edifying in shedding light on the unreported root cause underlying Haiti’s enduring economic dysfunction which I think many of my readers will find insightful.

In 1806, fearful that the Haitian Revolution (1804) might inspire enslaved Africans in other parts of the Western hemisphere to rebel, the U.S. Congress banned trade with Haiti, joining French, Spanish and Portuguese boycotts. Global shipping originating in or by Haiti was banned from trading with or entering American and European ports of trade. This coordinated embargo effectively crippled Haiti’s export-driven economy and its development as a once prosperous Caribbean port.  The embargo was renewed in 1807 and 1809, and in one form or another has lasted 197 years – with additional restrictions added in 1991 – until as recently as 2003.  The embargo was accompanied by a threat of re-colonization and re-enslavement by the American-European alliance if Haiti failed to compensate France for losses incurred when French plantation owners, as a result of the Haitian Revolution, lost Haiti’s lucrative sugar, coffee and tobacco fortunes supported by slave labor. [Dunkel, 1994] Haiti spent the next 111 years, until 1922, paying 70% of its national revenues in reparations to France – a ransom enforced by the American-European trade alliance as the price for Haiti’s independence.

As a direct consequence of this orchestrated, century-long economic strangulation, Haiti is, today, the poorest country in the Western Hemisphere by any measure:

Haiti’s debt was $302 million in 1980. In 1997 it was almost $1.1 billion, which is almost 40% of its Gross National Product. The value of its exports has fallen to 62% of 1987 levels. It should be listed as a severely indebted low-income country but the International Monetary Fund and the World Bank have refused to do so under the insistence of the North Atlantic alliance.

Thus began the systematic destruction of the Republic of Haiti. The French government bled the nation and rendered it a failed state. It was a merciless exploitation that was designed and guaranteed to collapse the Haitian economy and society. Haiti was forced to pay this sum until 1922 when the last installment was made. During the long 19th century, the payment to France amounted to up to 70 per cent of the country’s foreign exchange earnings.

More than 80% of the people in the countryside regularly don’t get enough to eat. Some 50% of the people are illiterate; 70% are unemployed; life expectancy for the average citizen of Haiti is 56 years and falling. Infant mortality is more than double the Latin American and Caribbean average. (Figures from PAPDA — the Haitian Platform to Advocate for an Alternative Development) Few people in Haiti have a reliable supply of clean water and those who do buy it by the jug.

The well-intentioned interventions of the U.S. have both helped and hurt Haiti. In 1915 the U.S. invaded and occupied the country, fearing a growing a German community, and other European influences, there in the lead-up to World War I. A period of stability followed, and by the time the U.S. pulled out in 1934, Haiti’s military was well trained, and a structure for elections was in place. But in 1957, François “Papa Doc” Duvalier was elected in an election rigged by the military, and Duvalier soon threw out any pretension of democracy, declaring himself chosen by God to be “president for life.” The U.S. tacitly supported him, seeing him as a preferable alternative to growing communist influences, which had taken hold in nearby Cuba. The despotic Duvalier regime was continued under his son, “Baby Doc,” until his forcible overthrow in 1986. Haiti was again thrown in disarray until the popularly supported, democratic election of the progressive, Jean-Bertran Aristide first in 1994, and again in 2000.

Since the re-election of President Jean-Bertrand Aristide, a progressive Man of Faith, the United States in 2004, then under Bush, moved to sabotage Haiti’s fledgling democracy through an economic aid embargo, massive funding of elite opposition groups, support for paramilitary coup attempts, and a propaganda offensive against the Aristide government resulting in his exile.  Hidden from the headlines for years, this campaign eventually became an open effort to destroy a popularly elected, progressive government in favor of a Republican-friendly regime.  Below you can read an excerpt of that Executive Order issued by then President George W. Bush on 5 Nov 2004

In addition, as the AP report about the U.S. Haitian trade embargo I’ve attached above indicates, it was the U.S. government’s intent to weaken the already crippled Haitian government.

‘…formalizing a comprehensive trade embargo on Haiti, effective November 5. The Administration is taking this additional step to comply with the resolutions of the OAS [Organization of American States] to tighten further the sanctions imposed on Haiti in the wake of the Aristide Government [a government controlled by the U.S.] earlier this month. The order applies to all commercial trade with Haiti, both exports and imports of goods and services. The only exception will be for humanitarian purposes: basic food staples, like wheat, sugar, rice, flour, cooking oil, and essential medicines. The OAS resolution, which called for a trade embargo, specifically made an exception for such humanitarian assistance.’

‘Except for humanitarian assistance…’ a legally required assistance which brings us to the extraordinary efforts currently being coordinated by the U.S. government in the wake of the earthquake. It seems the more things change, the more they stay the same.  This Order is still in effect today, and subject to formalized policies via the hemispheric Organization of American States (OAS), the European Union and the Inter-American Development Bank, with the continuing support of other European allies – including, importantly, France.

More recently, the U.S. government added another embargo on loans to Haiti through the OAS, the Inter-American Development Bank and got the European Union, formerly another large donor to Haiti, to do the same. The United States took this action under President George W. Bush to undo the efforts of former President Bill Clinton who had sought, during his administration, to re-integrate Haiti into world commerce.

When then U.S. Secretary of State Colin Powell spoke at the Organization of American States meeting in Santiago, Chile in June 2003, he warned that the OAS would re-evaluate its role in Haiti if the Aristide government did not conform to OAS resolutions about the organization of Haiti’s elections. This was also a warning to Latin American countries to follow U.S. policy on Haiti. Aristide was later overthrown (2004) and replaced by a provisional government until the 2006 elections installed Rene’ Preval.

Of course, I was incredulous in learning all this, but after several hours spent in the Library of my alma mater and a few more on the internet researching long-standing treaties involving Haiti have borne out the facts. And they are indisputable. Haiti’s economic and development dysfunction, it turns out, has absolutely nothing to do with voodoo, nor incompetence, and everything to do with deliberate economic strangulation – that continues to this day – initiated by France, and later coordinated by the U.S and her Europrean allies to enforce democracy or to coerce economic sanctions and debt repayment over a period of 197 years – almost two centuries.  Haiti today cannot be understood outside of the context of the legacy, and current, impacts of the tiny nation’s continuous string of trade embargoes, economic isolation and indebtedness coordinated by Western allies from the nation’s inception following the Haitian Revolution, until today.

Sources: CIA World Fact Book, U.S. Department of State Archives, OAS Publications, Encyclopedia Britannica, WaPo, et al.

Image: Wikipedia, Haitian Revolution, 1791

Queen Rania of Jordan listens intently in Davos

DAVOS, Switzerland — World Economic Forum: Upbeat bankers clashed with pessimistic economists on the opening day of the World Economic Forum, where the movers and shakers of global politics and business argued over whether to move forward with financial reforms – or to abandon what some claim would be a ruinous path toward over-regulation.

Just hours ahead of President Barack Obama’s first State of the Union address, bosses from Deutsche Bank, Lloyd’s and other financial giants warned Wednesday that a flood of new regulations risked choking off a global economy recovery. Others urged Obama, who has proposed restricting bank risk-taking, to push forward with stronger reforms.

The discussions in the rarefied air of this Swiss Alpine resort reflected the broader debate and anxiety over the global economy, and how to address an uneven recovery powered by a booming China and held back by high unemployment in the United States and other wealthy nations. “Let’s get good regulation, better regulation, but not more regulation,” said Peter Levene, chairman of British bank Lloyd’s. [But his argument misses the point that financial innovation has rendered depression-era regulations irrelelvant in today's casino-royale atmosphere of modern finance, and products like credit default swaps that Warren Buffett referred to as 'financial instruments of mass destruction.']

Davos: Get Live Streaming Updates here

FT: Davos WEC 2010 Update

Peter Sands, the CEO of Britain’s Standard Chartered Bank, added that his industry already has been “fundamentally changed” by tighter regulations and supervision, while Deutsche Bank Chairman Josef Ackermann said “we will all be losers” if governments clamp down on markets too zealously. “The pendulum might have swung too far,” Ackermann warned. “Consistent and global rules, and a level playing field is absolutely key to the global economy.”

Obama is expected to push Wednesday evening for greater regulation of Wall Street, and there are calls in the United States and Europe for tougher taxation on financial institutions to recoup the billions governments have doled out in rescue packages since 2008.

Coupled with the high unemployment much of the rich world is experiencing, there is strong public pressure for action against the sectors that were so deeply involved in leading the world into recession. Some economists said more needed to be done.

Read more from HuffPo here.  And from the Financial Times here. 

Sources:    HuffPo.com; FT.com        Photo:  Zimbio.com

Top executives and world leaders discuss global economy in Davos

The World’s leading banking and finance executives, industry regulators, and billionaire investors like Warren Buffet and George Soros – the Wall Street crowd writ large – will head to the annual World Economic Forum held in Davos, Switzerland this week.  This little mid-winter get-away traditionally coincides with the banking sector’s year-end bonus season and their requisite winter ski vacation.  This comes just days after US President Barack Obama unveiled plans for the most stringent rules on financial institutions in decades as he seeks to prevent a repeat of the global financial crisis that prompted costly government bailouts of banks. President Obama is expected to repeat his newly aggressive stance toward the financial industry in a populist message in his annual State of the Union address on Wednesday.

Over 2,500 leaders from more than 90 nations representing business, finance, government and philanthropy will address pressing global issues in discussion format, often followed by Q&A from the audience. According to a number of sources, industry executives are planning to use the Swiss ski resort’s annual global economics jamboree to surreptitiously lobby against President Obama’s reinvigorated restrictions on casino-like proprietary trading, mergers, and too big to fail financial institutions who’s operations benefit from FDIC (i.e., taxpayer insured) protection or federal bailout funds (e.g., TARP).  In my opinion, this unintended role by the government prompted by taxpayer funded bailouts establishes both a legal, as well as a legitimate public role as an equity shareholder in the sector, and as such a say in how the  banks ought to be governed.  Interestingly, many financial quarters in the Euro zone have emrbaced President Obama’s firmer stance and have been calling on their regulators to follow suit.  Read more on that here.

And based on various reports I have read, bank chiefs braving the media spotlight at the glitzy Davos summit – who will include Citigroup’s Vikram Pandit, JP Morgan Chase’s Jamie Dimon, among others  – will make their own case to regulators while also networking with well-heeled clients and C-suite colleagues. Their focus will largely be on Obama’s proposals for stopping banks from taking risky bets with their own capital to make money on the financial markets – a practice known as “proprietary trading.”  According to a report in this morning’s Financial Times, some senior bankers will argue that banks’ proprietary activity was not a key source of the credit crisis – and so should not be stamped out. 

The Davos summit is also likely to be used by international regulators to try to forge a common front. A crucial plank in the strategy of the global financial lobby will be to shift the debate, as well as shifting the the burdens resulting from the financial meltdown, to regulators and international bodies such as the G-20 or Basel committees, and to argue that regulators need to take a more coordinated approach to curbing systemic risk.

Some senior private equity and hedge fund managers will argue that banks’ proprietary activity was not a key source of the credit crisis - and so should not be stamped out. They will also argue vociferously against the idea of breaking up so-called ‘too big to fail’ financial institutions. By contrast, many notable voices in the debate, myself included, have argued that institution that are considered too big to fail are, in fact, too big to exist by the sheer threat and risk that they pose to the global financial architecture. Read more on that here.

Source:  FT.com,  HuffPo.com, The Guardian (UK)      Photo: WEC.org

Finally capitulating to voter outrage, and the very kind of “Change” he campaigned on last year, President Obama proposed tough new financial industry restrictions under what he called “the Volcker Rule” – named after Paul Volcker, the former Fed Chair.  Volcker, along with Austin Goolsbee, a member of the President’s Council of Economic Advisers, have been for the last year the Administration’s fiercest advocate for stronger financial regulatory reforms.  Volcker has been particularly aggressive on the issue of “too big to fail” financial institutions, as well as the high-risk, casino-like proprietary trading operations at the big banks that nearly destroyed the financial system.  In adopting this new tougher stand, Mr. Obama appears to have set aside a ‘soft touch’ approach to financial regulatory reform that had been championed by his economic team, led by Treasury Secretary Timothy F. Geithner and White House National Economic Council Director, Lawrence Summers.  The Geithner-Summers axis appears to have been benched in exchange for the emergent Volker-Goolsbee axis.

 In rolling out his new, more aggressive, tough talk approach to Wall Street, the president added,  “We have to get this done,” and “If these folks want a fight, it’s a fight I’m ready to have.”  It was a stern, populist lecture from the president to Wall Street for what he perceives as its abandonment of Main Street. Obama said the government should have the power to limit the size and complexity of large financial institutions as well as their ability to make high-risk trades.  He said it wasn’t appropriate that banks have been able to run these trading operations with the protections afforded to regular banking services.  Among other strong language, the president branded bank executives as “fat cats” and proposed a fee on large banks to cover shortfalls in the government’s $700 billion taxpayer bailout fund.  Expanding on earlier measures, Obama endorsed Volcker’s proposal to restrict risky proprietary trading by commercial banks that is often in direct conflict with customer interests to the bank’s benefit.  The new measures would also separate commercial banks from investment banks, a line blurred a decade ago by the Republican-led Congress’ repeal of the Depression-era Glass-Steagall Act.

Obama also proposed addressing one of the clearest issues leading to the financial crisis of the past years, namely banks that stray wildly from their core mission of serving the interests of their customers.  Having met with Paul Volcker this morning, and having last week proposed new fees on Wall Street to ensure the taxpayers get their money back, the President came with a direct message for banks that might object to these changes strongly criticizing the powerful financial industry lobby, saying “But what we’ve seen so far, in recent weeks, is an army of industry lobbyists from Wall Street descending on Capitol Hill to try and block basic and common-sense rules of the road that would protect our economy and the American people. So if these folks want a fight, it’s a fight I’m ready to have.  And my resolve is only strengthened when I see a return to old practices at some of the very firms fighting reform; and when I see soaring profits and obscene bonuses at some of the very firms claiming that they can’t lend more to small business, they can’t keep credit card rates low, they can’t pay a fee to refund taxpayers for the bailout without passing on the cost to shareholders or customers — that’s the claims they’re making.  It’s exactly this kind of irresponsibility that makes clear reform is necessary.

The President went on to explain the reforms he was proposing in more detail saying, among other things:

First, we should no longer allow banks to stray too far from their central mission of serving their customers.  In recent years, too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward.  And these firms have taken these risks while benefiting from special financial privileges that are reserved only for banks.

Our government provides deposit insurance and other safeguards and guarantees to firms that operate banks.  We do so because a stable and reliable banking system promotes sustained growth, and because we learned how dangerous the failure of that system can be during the Great Depression. 

But these privileges were not created to bestow banks operating hedge funds or private equity funds with an unfair advantage.  When banks benefit from the safety net that taxpayers provide –- which includes lower-cost capital –- it is not appropriate for them to turn around and use that cheap money to trade for profit.  And that is especially true when this kind of trading often puts banks in direct conflict with their customers’ interests.

The fact is, these kinds of trading operations can create enormous and costly risks, endangering the entire bank if things go wrong.  We simply cannot accept a system in which hedge funds or private equity firms inside banks can place huge, risky bets that are subsidized by taxpayers and that could pose a conflict of interest.  And we cannot accept a system in which shareholders make money on these operations if the bank wins but taxpayers foot the bill if the bank loses.  Read more from the White House fact sheet.

Source:   www.WhiteHouse.gov

The pantheons of historic African American leaders is replete with courageous, insightful and moral men and women who sacrificed personal gain – and in some cases, their very lives – to enrich the lives of the nation, and of others.  From Harriet Tubman and Nat Turner, to Ida B. Wells and Marcus Garvey; from  Mary McCleod-Bethune and Frederick Douglass, all the way to Medger Evers and Mae Jamison, Black leadership has been unwavering in its commitment to ensuring that America live up to its professed credo of freedom, opportunity and equality for Black America and thereby enhancing the same for all Americans – including recent immigrants and newcomers to the fabric of America.  However, the life and work of Dr. Martin Luther King, Jr. stands apart and alone in relation to the values and noble traditions of which he is a part – namely, African American culture and history.  It is not the breadth or the reach of Dr. King’s leadership that establishes his work as unique— Marcus Garvey after all had a larger global presence.  Nor is it the fact he worked for a dollar a year salary and was completely uninterested in accumulating fame or material wealth—because Malcolm X made the same sacrifice.  But Dr. King’s views on economic justice at home, and questions about U.S. relations abroad, raised important democratic and constitutional questions about whether or not U.S. foreign policy decisions that exclude the values, traditions and perspective of a large, important and influential segment of its society can truly ever reflect “American” national interests.  In the context of an Obama presidency, and what it means for the future of our nation, this question is one that must be addressed by the nation’s foreign policy and national security establishments.  Until this is done, it will remain the elephant in the room that everyone will try to ignore, but simply cannot.

I don’t believe we can have world peace until America has an integrated foreign policy that represents the views and cultural sensibilities of all its people. – Dr. Martin Luther King, Jr.

By the time of his untimely demise, Dr. King had become the country’s most prominent opponent of the Vietnam War, and a staunch critic of overall U.S. foreign policy, which he deemed militaristic. In his “Beyond Vietnam” speech delivered at Riverside Church in Manhattan on April 4, 1967 — a year to the day before he was murdered by the bullet of domestic terrorists — Dr. King called the United States “the greatest purveyor of violence in the world today.”  Many Americans, understandably, might take exception and have a hard time seeing themselves this way. But unless you understand the sometimes nefarious ways that American power has been used overseas – often in the shadows, and unbeknownst to Americans used to the flattering images of ourselves in the media – then we will never truly understand what gave rise to Al Qaeda, or the blowback – the unintended consequences – our foreign policies incur. 

Dr. King lived and eventually died holding onto the fundamental spiritual truth that “we are all tied together in a single garment of destiny, an inescapable network of mutuality.”  It is through the prism of this world view that he viewed the social facts of racial and economic inequality. It is also one of the underlying principles of the Obama foreign policy doctrine of mutual interests and mutual respect between nations. This is why his analysis always started with the spiritual reality that Black Americans and White Americans had more in common than we did differences that separate us;  then he moved courageously to addressing  laws and policies  that divided us.  His speech, for instance, in opposition to the Vietnam war was the blueprint that President Obama used for his ‘A Just and Lasting Peace’ Nobel lecture , as well as his ’A New Beginning’ speech to the Muslim world  in Cairo, Egypt.  Clearly, the values and cultural traditions that deeply influenced Dr. King are central to the Obama foreign policy doctrine – and Obama has said as much. This simple fact holds important contextual understanding as the nation’s demographic landscape evolves.  That is why Dr. King’s proclamations on U.S. foreign policy should be required reading in any university international relations, national security or foreign policy curriculum. (You can hear it in its entirety above.)  Years before Hippie protests, and before Walter Cronkite declared his opposition to the Vietnam War – the watershed moment many consider turned American sentiment against the war – Martin Luther King, Jr. and Muhammad Ali, both prominent Black Americans in their own right and influenced by the same underlying cultural values and traditions, were vocal critics and organized against the war and spoke out about the nefarious nature of the nation’s foreign policies.  

On economic justice Dr. King was equally prolific. Here, for example, are some facts to consider in what is the socio-economic reality of America today: The most recently available poverty data (2008) reveals an America where nearly 40 million citizens (13.2%) live in poverty, while nearly one-third 0f Americans (31.9 %) struggles to make ends meet at twice the poverty level.  According to the data, significant racial disparities still persists. While the number of Whites in poverty was 8.6%, 24.7% of Blacks and 23.2% of Latino peoples lived in poverty in 2008. According to preliminary review, the 2009 data is expected to worsen – a year when rising unemployment pushed many families closer to the brink.

Our needs are identical with labor’s needs–decent wages, fair working conditions, livable housing,  healthcare and welfare measures, conditions in which families can grow, have education for their children and respect in the community. That is why the labor-hater and labor-baiter is virtually always a twin-headed creature spewing anti-Negro epithets from one mouth and anti-labor propaganda for the other mouth. I dream of equality of opportunity, of privilege and property widely distributed; a dream of a land where men will not take necessities from the many to give luxuries to the few.     – Dr. Martin Luther King, Jr.

Racial disparities also continue to separate Black and Latino Americans from White Americans. For example, with unemployment rates and wages—two basic indicators to measure decent work—there remain entrenched racial disparities. In December 2009, the unemployment rate for white men over 20 was 9.8%, but for Black men over 20, by conservative estimates, it’s nearly double at 16.9%. Bureau of Labor Statistic (BLS) statistics for 2008 report that the median weekly earning for full-time wage and salary workers was $742 for White Americans, but only $589 for African Americans, while only $529 for Latino Americans.  Such disparity in the numbers represent an affront not only to our moral sensibilities, but also to our economic self-interest and, even worse, to our global competitiveness with rapidly emerging nations around the world.

Dr. King’s struggle for economic & social justice, and U.S. foreign policy is what consumed the final years of his life.  And as we have learned since his assassination, his organizing around these issues are what most concerned the national security establishment — in particular, J. Edgar Hoover’s FBI.  Dr. King also marched with workers at the Scripto strike in Atlanta and his Southern Christian Leadership Conference worked hard to help hospital workers organize with 1199 in Charleston, South Carolina.  At the 1961 AFL-CIO convention Dr. King said, “Our needs are identical with labor’s needs–decent wages, fair working conditions, livable housing, old age security, health can welfare measures, conditions in which families can grow, have education for their children and respect in the community. That is why the labor-hater and labor-baiter is virtually always a twin-headed creature spewing anti-Negro epithets from one mouth and anti-labor propaganda for the other mouth. I dream of equality of opportunity, of privilege and property widely distributed; a dream of a land where men will not take necessities from the many to give luxuries to the few.”  This sounds eerily familiar to precisely the environment – with the same issues, and the same race-baiters and fear-mongers in the form of far right conservative / lunatic fringe Tea Party protesters – we have today as the president tries to move his agenda forward.

True compassion is more than flinging a coin to a beggar; it comes to see that an edifice which produces beggars needs restructuring. – Dr. Martin Luther King, Jr.

Here is another inconvenient fact to consider:  the last economic recovery holds the distinct dishonor of being the first on record where poverty levels rose, and median income of working & middle class Americans – of all races – fell despite rising corporate profits and productivity. To avoid a repeat performance, Congress must take some key steps to ensure that low-income and working class Americans, ethnic minorities and other traditionally vulnerable communities have the opportunity to participate in the coming economic recovery.  For example, pursuing policies at home and abroad that ensuring a public option in the final outcome of Healthcare reform; pass the Employee Free Choice Act (EFCA) to ensure worker’s rights at home; and demand fair labor standards overseas in order to ensure a fair and competitive landscape in Global Markets, while we develop a globally competitive advantage in our productive capacity as a nation by leveraging the strengths that comes from our diversity and plurality as a nation.

Recommended Reading 

Diversity and U.S. Foreign Policy: A Reader  by Earnest J. Wilson (university press, 2004)

Black Man’s Burden: Africa and the Curse of the Nation-State   by Basil Davidson (Random House 1992)

U.S. Foreign Policy and Black National Interest, Edited by Charles P. Henry

New Directions in U.S. Foreign Policy, by Inderjeet Parmar, et al (UK)

Source: www.TheRoot.com by Andre Willis      Video: YouTube

World Economic Outlook 2010

In January of 2009, the International Monetary Fund (IMF) forecasted that advanced economies would not exit the global recession until the middle of 2010.  However, these economies posted, on average, GDP growth of about 2% in 3Q 2009, and growth in emerging economies accelerated to about 8% in 2Q and 3Q – 2% higher than forecasted.  Additionally, global trade and industrial production are on a sharp recovery path.  

Although most projections show a continuation of positive growth in 2010, questions about the strength and sustainability of the recovery remain. To provide an economic outlook for the new year, the Carnegie Endowment hosted a distinguished panel of the heads of the economic forecasting unit at their respective organizations.  The discussion provided a number of insights and perspective on the global economic outlook that many may find of interest; to some, a surprise.  For instance, the consensus was that Asia would lead the global recovery, and that high unemployment and high sovereign debt levels would be experienced in the developed economies. The panelists included Hans Timmer of the World Bank; Jörg Decressin of the IMF; Phillip Suttle of the International Institute of Finance (IIF); Desmond Lachman of the American Enterprise Institute (AEI), and Uri Dadush of the Carnegie Endowment.  The panel moderator was Pieter Bottelier of the Carnegie Endowment.

First up, Dadush of the Carnegie Endowment highlighted several factors behind this stronger-than-expected recovery:

§  Most importantly, unprecedented stimulus and financial rescue efforts in advanced economies largely worked.

§  Asia, where fundamentals like financial sectors and public budgets were healthy before the crisis, recovered rapidly, helping pull the rest of the world to recovery.

§  The world succeeded in avoiding large-scale contagion effects, including sovereign debt crises, competitive exchange rate devaluations, and trade wars.

Next, Timmer from the World Bank noted that, despite these improvements, production levels across the world remain 7-10 % below pre-crisis levels, unemployment in many countries is around 10 percent, and fiscal positions have deteriorated significantly: ultimately, there is still a long way to go.

What to Expect for 2010

Suttle of the IIF, and Dadush offered optimistic outlooks for 2010, citing several supporting factors:  

§  The growing role of emerging economies, which did not suffer a financial crisis and remain fundamentally strong, will support the global recovery.

§  The corporate sector, particularly non-financial firms in the United States, reacted quickly and aggressively to the crisis, registering better than expected earnings in 2009. As a result, a significant turnaround is expected soon in their labor, inventory, and investment demand, with employment expected to improve by the middle of 2010.

§  Policy will remain supportive. Much of the fiscal stimulus has yet to enter the market, with only one third of the U.S. stimulus package spent so far. Financial rescue is being withdrawn gradually in response to market signals. In addition, as risk appetites increase, low policy interest rates will be much more effective in increasing consumer and investment demand. 

The AEI’s Lachman, however, presented a grimmer picture, projecting a very subdued recovery with a return to recession possible in the United States:

§  With unemployment close to 10 percent in advanced economies, low wage and income growth will depress consumption.  The weak private sector will struggle to support the recovery.

§  Banks, still suffering from huge losses, will be forced to cut credit.  Additionally, regional banks in particular will likely be hit by commercial property market weaknesses.

Advanced Versus Emerging Economies

Major differences have emerged between advanced economies and emerging markets. Emerging economies, which are increasingly driven by domestic growth factors rather than exports, are now contributing significantly more to growth and investment than advanced countries.

§  Decressin of the IMF noted that both groups saw growth from 2007 to 2009 contract by approximately 6 percent, falling from 3 percent to -3 percent in advanced countries and from 8 percent to 2 percent in emerging markets. They remained “cyclically” coupled, though the underlying growth rate in emerging markets is much higher.

§  At the same time, there was much heterogeneity among the emerging economies. While Asia—and China in particular—has led the recovery, Eastern Europe (with the exception of Poland) has been less successful, with little sign of recovery.  Latin America paints the most diverse regional picture, with countries like Brazil faring relatively well and others, like Chile, lagging behind.

§  Decressin argued that as long as the differences between the advanced economies, which are weighed down by both structural and cyclical weaknesses, and emerging ones persist, capital will continue to flow to emerging markets. 

Panelists agreed that China must evolve to fit this new paradigm. China is already or may soon be the world’s second largest economy and the largest trader and emitter of C0₂.  Bottelier argued that China must embrace this new role and take a more prominent leadership role in crucial areas such as global trade reform and climate change. Domestically, China should pursue structural reform and a more flexible exchange rate.  Dadush noted that a flexible and appreciated exchange rate is in China’s interest, as it will help rebalance the economy towards consumption and reduce long-run inflationary pressure. However, placing external imbalances at the center of policy dialogue is misguided. 

Policy Solutions

Speakers outlined the challenges that policy makers face in the coming year, and offered suggestions for solutions:

§  Fiscal policy should remain stimulative in the near term, but panelists agreed that leaders need to begin engineering a shift in demand from public to private sources. Timmer stressed that while fiscal stimulus can provide a short term boost, it is not an effective growth strategy.

§  Similarly, Suttle commented that monetary policy should remain supportive, but given the unprecedented nature of recent policy—particularly quantitative easing in the United States and UK—leaders must exercise caution.

§  More should be done to promote credit.  Banking sector lending remains depressed and credit must be available once demand picks up.

§  Policy should accommodate the permanent shift in the structure of the world economy caused by the crisis, and support demand moving from traditional industrial powers to emerging markets. Timmer noted that these shifts—if managed with long-term considerations like climate change in mind—have the potential to create new sectors, such as “green industries,” that will help drive future growth.

Read more here.

Economic competitive landscape shifting

As the rest of the world struggles to recover from the most severe global economic crisis since the Great Depression, China’s powerful economic miracle has created, effectively, a gradual reverse-flow of economic power from Western to Eastern capitols. Witness, for instance, the emergence of Japan as the second largest economy in the world after having replaced Germany last decade as the former number two economy. And if you believe recent World Bank reports, China, the fifth largest economy just four years ago, will soon replace Japan bumping it to the number three spot; and somewhere in the next decade or so will be poised to displace the U.S. economy as the leading global economic power. When measured on a purchasing power parity (PPP) basis,^[4] China is already  the world’s second largest economy after the U.S. with a GDP of $7.8 trillion (2008).  In fact, according to a recent NY Times article, impressive new economic records, it seems, are being reached daily by the large Emerging Market economies - known more commonly as the BRIC nations.  In this remarkable environment of global trade and economic competition – and helped along by foreign direct investment (FDI) of approximately $80 Bn(US) in 2009, foreign currency reserves of  $1.6 Trn in U.S. Treasury notes, and a declining greenback – China in particular has surged past the United States to become the world’s largest auto manufacturing Market according to recently released data.  To boot, in rapid succession of that amazing feat, China also toppled Germany as the world’s largest exporter of manufactured goods according to preliminary 2009 year-end trade data released last week.  

All this is impressive. Yet, as a casual observer of mainstream sentiment, and judging by feedback & reactions to some of my recent posts, it appears that China’s success and emergence is unsettling to many and is becoming the source of collective angst toward China.  I mean, you can just read the headline of the above referenced NYTs article to sense the anxiety. But this is by no means unusual. It is a prime example of the latent economic nationalism that exists in the national character of many nations — especially competitive ones like ours.

This type of underlying negative sentiment toward China , however, is not new. China has been in the process of emerging for over three decades now – ever since Deng Xiaoping’s economic & Market reforms liberalizing State control of China’s economy began in 1978.  Consider also the fact that in that same time period China has lifted 300 million of its citizens out of poverty and subsistance conditions into a working and middle-class economic engine for the nation.  During the same time period, twelve million more Americans slipped into poverty — an increase of 33%.  And as long as I have been on ‘the Street’, analysts, strategists, pundits, investors and arbiters from ‘the City’ and other financial centers in the West, using Japan as its best example, have been prognosticating the “unsustainability” or imminent economic implosion of China’s remarkable economic growth and performance.  And, of course, no doubt it is bound to happen: after all, even a broke clock is correct twice a day.

But my larger point is simply this: Rather than jumping on the 30-year long “China’s-growth-is-unsustainable” bandwagon, observers would be better served tending to our own acre of diamonds by supporting and advocating for aggressive financial and economic reforms necessary to making the West – and the U.S., in particular – more globally competitive, economically viable and sustainable over the long haul versus newly emerging world players like China & Brazil, among others. That begins by holding Wall Street and the financial industry accountable for the practices and over-leveraged risk-taking that precipitated the global financial crisis and the resulting economic shocks – shocks that have devastating human costs that leave deep impacts on people, lives and struggling families.  If you haven’t been to Shanghai, Beijing or Guangong province lately to marvel at China’s planning and infrastructure acumen, then asked yourself: ’Why can’t we accomplish the same thing in the West since we pioneered development?’ a trip would be well advised. 

The gradual transition of the global competitive landscape from West to East, in particular to China, has occurred partly because economic growth & performance as measured by GDP, FDI, Currency Reserves, job growth, balance of payments, etc, has remained remarkably robust while the world’s wealthy nations and leading developed economies continue to endure the most precipitous decline in global competitiveness, international trade and gross economic production since the Great Depression – rescued, interestingly, only by the advent of WWII. Hmmm…

As a casual observer of mainstream sentiment, and judging by feedback and reactions to some reports, it appears that China’s economic success and emergence is unsettling to many and is becoming the source of collective angst in the West toward China.

And lest I be misunderstood, I’m not an apologist for things Chinese — although I have a weakness for shrimp mei fun.  All I’m saying is that China has five-thousand years of recorded history – and much longer when you consider the archeological record: we might have something to learn about economic sustainability and long-term planning from their ancient civilization, rather than nascently resenting their economic emergence.

In any event, my other point is this: as the NY Times article pointed out, the competitive transition from West to East – contrary to common punditry – did not happen by chance. China’s managed brand of State capitalism, its assiduous implementation of specific five-year economic plans, its efficient State intervention in the national economy without the “advice and consent” of a legislative bureaucracy – as is often the case in Western democracies – combined with the “defiant optimism of its companies and consumers, has propelled an economy that until recently had seemed tethered to the health of its major export markets” – primarily the U.S.  This brand of ‘State capitalism’ – Tea party fanatics to the contrary – is yet another form of capitalism that, thus far, has yielded far more benefits, in far shorter a period of time, without the economic shocks common to capitalism’s development trajectory in the West. Maybe, just maybe, we could endure a little humility in the West and learn a few things from the Chinese.  

By contrast, the global financial crisis, in general, and the U.S. ‘Great Recession’ in particular, China Daily’s website noted recently (and as I have written about prolifically on this blog), has laid bare the unsavory and harmful nature of Western-style, or Laissez-faire, capitalism. 

Of course, China’s State-run media not missing a beat to whip up nationalist sentiments, indulged in a measure of self-aggrandizement, hailed China’s emergent economic prominence as proof of superior global competitiveness. The country’s economic miracle, the State-owned newspaper, People’s Daily, boasted last week, exists because China’s State system — unlike those in the West — can make and implement economic policy quickly & efficiently.  

Say what you will, but the proof is in the pudding.

Source: NY Times, IMF.com, Wiki   Image: english.pravda.ru

Based on the most recently available information on foreign direct investment (FDI), by nation, the Palestinian state has experienced an unexpected surge in its economic growth in 2009, and a burdgeoning effort to attract foreign investors and entrepreneurs. 

U.S. envoy George Mitchell recently said that Israel has reduced the number of checkpoints and roadblocks in the West Bank, helping economic growth.  For its part, last year the U.S. gave nearly $1 billion in foreign assistance to the Palestinian state. Felice Friedson of The Media Line looks at broader attempts to foster growth and foreign investment in the Palestinian economy.

In addition, the World Focus piece included an eye-opening video clip (above) that provides a fresh, but welcomed, perspective on Palestinian investment activity, and a networking trade missions for international entrepreneurs that you may find revealing. It may also open doors to future business and investment opportunities in the embyonic state. Enjoy.

Source: World Focus

Beijing/Shanghai, Jan 8 (Reuters) - China sold more than 13.5 million vehicles in 2009, the official Xinhua news agency said on Friday, overtaking the United States to become the world’s largest auto market as government policy initiatives spurred demand.

The final figure compared with annual sales of 10.4 million cars and light truck sold in the United States, the lowest level in 27 years. It was also well above the 10 million in vehicle sales that China had originally targeted for 2009. The Chinese tally, which also includes heavy vehicles, is still higher than that of the U.S. after deducting roughly 650,000 units of heavy trucks, according to Orient Securities, making it the world’s biggest auto market.

The country’s official auto sales data for 2009 is scheduled to be released by the China Association of Automobile Manufacturers next week, but the figure reported by Xinhua is in line with analysts’ expectations. Industry observers attributed China’s strong auto sales largely to government policy initiatives, which had effectively lifted market sentiment and attracted buyers back to showrooms.

A low comparative base in 2008, when car sales growth slowed to a single-digit rate for the first time in at least 10 years, also helped inflate the 2009 rate, they said.

China has been a major bright spot amid global recession and a safe haven for battered industry giants such as General Motors and Ford Motor. The market was likely to return to a slower but more rational growth rate of roughly 10 percent in 2010 on continued policy support from the government even though the renewed tax incentives for small cars were not as aggressive as expected, analysts said.

Source:  Reuters/NY Times

Signs of revival on the factory floor emerged in the United States and Asia on Monday, fueling exultant buying on Wall Street and reinforcing a sense that genuine economic recovery was unfolding. But if the Great Recession has indeed relaxed its grip on American life, it has been replaced by something that might be called the Great Ambiguity — a time of considerable debate over the clarity of economic indicators and the staying power of apparent improvements.

Manufacturing expanded in the United States in December, the fifth straight month of gains, amplifying hopes that a job market hobbled by double-digit unemployment might finally be adding paychecks. New jobless claims slipped markedly last week. Some economists think data to be released on Friday will show the economy gained jobs in December, the first monthly net increase in two years.  “We’re really coming back,” said Allen Sinai, chief global economist at the research firm Decision Economics. “The expansion is picking up the pace.”  But many economists remain worried that momentum could soon weaken, with the economy sliding back into glum times.  Indeed, the only area in which economists can reliably declare expansion is in the supply of competing narratives about the economy — perhaps to be expected in any transition between downturn and the inevitable turn for better. “That is always the nature of the boomlet after recession,” Mr. Sinai said. “People think it’s going to fade away.”

Investors pushed up stock prices, with the Dow Jones industrial average gaining 156 points, or 1.5 percent, and oil prices reaching a 14-month high, $81.51 a barrel. [See Pages B1 and B8.]

Much of the improvement in manufacturing — a small slice of the American economy — is the result of businesses rebuilding inventories after slashing them. The economy has also been stoked by $787 billion in federal spending aimed at stimulating growth…  Read more here.

Source: NYT, 5 Jan 2010 Peter S. Goodman;  Photo: www.topnews.in/files/