Do we throw money at AIG and help bail out Wall Street? Well, that’s what we have been doing, but other than helping investment banking houses like Goldman Sachs, how effective has it really been? I have another, more modest proposal: Investing in poor countries. You know, that dirty word, foreign aid? See why it might make more sense than you might think to help your neighbor by throwing money into “emerging markets” rather than merely trying to keep the financial levees from crumbling.
First, though, a reality check. Japan imports more than it exports for the first time in 13 years.
Japan’s current account recorded its largest deficit on record in January, reaching 172.8bn yen ($1.8bn; £1.2bn). It was its first deficit in 13 years.
The current account measures the balance between a country’s exports and imports – a deficit means more imports.
Government figures show that exports nearly halved in January, while imports fell by a third.
Ah, the benefits of globalization. Free trade giveth but free trade can also taketh away in a world where everything is entangled, greed rules the roost, and reckless gambling with other people’s money is par for the course.
The global economy will shrink for the first time this year since World War II, the World Bank has said. […]
By the middle of 2009, industrial output could be as much as 15% lower than 2008, while trade may record the biggest decline in 80 years, it said.
Which means the poor get even poorer, i.e., in the language of the 21st Century “developing countries” will come out on the short end:
WASHINGTON (AFP) — Developing countries face a financial shortfall of 270 to 700 billion dollars this year, the World Bank found in a study published Sunday, warning that international institutions alone cannot fill the gap.
The shortfall comes “as private sector creditors shun emerging markets, and only one quarter of the most vulnerable countries have the resources to prevent a rise in poverty,” the Bank said in statement.
In America and other “rich” nations people lose their homes in times of economic crisis and banks go under. In “developing countries, more people starve to death, die from disease, suffer from wars and famine. For them, the apocalypse arrived early. Just ask the people of East Africa, Sudan, Afghanistan, Myanmar, and so on and so forth.
Our beloved Arthur Gilroy has a diary posted here promising a civil war in the United States between rural and urban populations with the military joining the fight on the side of the reds against the blues. I confess, much as I enjoy post-apocalyptic gloom and doom, a civil war isn’t a likely scenario in North America within the near term. However it is already a reality in much of the world: Southwest Asia, Indonesia, The Philippines, Africa, Israel and its neighbors, Iraq, Afghanistan and Pakistan (sparked by US intervention, true, but civil war nonetheless) and Latin America, where drug cartels are close to destroying the legitimacy of national governments.
(cont.)
Much as Pakistan is fighting for survival against Islamic radicals, Mexico is waging a do-or-die battle with the world’s most powerful drug cartels. Last year, some 6,000 people died in drug-related violence here, more than twice the number killed the previous year. The dead included several dozen who were beheaded, a chilling echo of the scare tactics used by Islamic radicals. Mexican drug gangs even have an unofficial religion: They worship La Santa Muerte, a Mexican version of the Grim Reaper.
In growing parts of the country, drug gangs now extort businesses, setting up a parallel tax system that threatens the government monopoly on raising tax money. In Ciudad Juarez, just across the border from El Paso, Texas, handwritten signs pasted on schools warned teachers to hand over their Christmas bonuses or die. A General Motors distributorship at a midsize Mexican city was extorted for months at a time, according to a high-ranking Mexican official. A GM spokeswoman in Mexico had no comment.
“We are at war,” says Aldo Fasci, a good-looking lawyer who is the top police official for Nuevo Leon state, where Monterrey is the capital. “The gangs have taken over the border, our highways and our cops. And now, with these protests, they are trying to take over our cities
These are the places on the globe that we should be most concerned about. Oddly enough, they may also hold the key to economic revival. Provided, that is, we provide them the necessary aid to continue to grow their economies:
In remarks prepared for delivery at the same conference in London today, World Bank Chief Economist and Senior Vice-President Justin Yifu Lin said developed countries should spend some of their fiscal stimulus in developing countries as the economic effect could be significant.
“Clearly, fiscal resources do have to be injected in rich countries that are at the epicenter of the crisis, but channeling infrastructure investment to the developing world where it can release bottlenecks to growth and quickly restore demand can have an even bigger bang for the buck and should be a key element to recovery,” Lin said in his prepared remarks.
Charity for the less fortunate is not just doing a good deed for the sake of a reward in the afterlife. It can be the beginning of a feedback loop of economic growth. For better or worse, Bush the Elder’s New World Order has come to pass. We are all one people now, all subject to the vicissitudes of the grand global economy. And when we help others achieve better living standards we help ourselves. If we will not help those living in these poor countries out of compassion, can’t we at least help them out of simple self interest? Scientists who have studied altruism say that it serves the purpose of survival. That is why altruism, the spirit of sacrifice is strongest among those who identify with the recipients of their sacrifices. Family, tribes, communities, nations. Well, we now live in a world where we really our a single family, the family of homo sapiens sapiens. And if we hope to live up to that name, we would be wise to stop thinking in terms of national interests, and instead recognize that helping our brothers and sisters half way around the globe is also helping the chances that our sons and daughters will survive these turbulent times, and that their sons and daughters, will live to see the 22nd Century.
Investing some of our “stimulus package” in infrastructure overseas, i.e., helping the poorest among us, is surely a better use of those funds then allowing the likes of Goldman Sachs to avoid the consequences of its reckless behavior and greedy schemes, don’t you think? The IMF does:
Aid is controversial. Some say it is often wasted.
But one of the big messages from the IMF is for the rich countries – it’s time to step up, not cut back on aid.
Helping others to help yourself. What a concept.
Good idea, thanks for this post! jobs, higher wages, education are essential in Mexico – and building an effective police force rather than militarizing the situation (thanks, GWBush for that helpful strategy!).
I think by America a rich nation you mean United States? – please, let’s go back to calling our country the USA.
NAFTA really screwed Mexico. The importation of US’s big agri corn bankrupted little farms there, forcing people to abandon farming and head north to the U.S. where they supplied cheap, illegal labor which undercut American workers.
The perfect thing for international business.
That part of NAFTA needs to be rejiggered.
I believe it was Vicente Fox who said that Mexicans are going to work – it’s up to America to decide whether they work in Mexico or in America…
Mexicans are fighting to retain the integrity of their maíz – cultivation of which they invented, great technology!, subsistence and diverse agriculture but it’s tough.
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Chancellor Angela Merkel said the global economy had been plunged into crisis by financial excess carried out without social responsibility and with a loss of proportion by many bankers and managers.
“The world has lived above its means,” she said, adding that “only once we recognize these causes can we extricate the world from this crisis. To do this we need a clear set of principles.”
These, she said, had to entail greater social responsibility in business and financial dealings and recognize that the state is “the guardian of economic and social order.”
“These principles have to be adhered to across the world,” Merkel said. “Only then will it be able to overcome the crisis. The world is currently learning this lesson.”
"But I will not let myself be reduced to silence.".
(NYT) – American investors are ditching foreign ventures and bringing their dollars home, entrusting them to the supposed bedrock safety of United States government bonds. And China continues to buy staggering quantities of American debt.
These actions are lifting the value of the dollar and providing the Obama administration with a crucial infusion of financing as it directs trillions of dollars toward rescuing banks and stimulating the economy …
“Virtually all of the low-income countries are in very serious trouble,” said Eswar Prasad, a former official at the International Monetary Fund and a senior fellow at the Brookings Institution, the liberal-leaning research organization in Washington.
He went on: “This is the third wave of the financial crisis. Low-income countries are getting hit very hard. The flow of private capital to the emerging market has dried up. “
"But I will not let myself be reduced to silence."It’s a nice thought but the details need to be worked out very carefully, and the critical issue is the channel that rich countries will use to build infrastructure in other countries.
The reason that foreign aid has such a bad image is the corruption that went on in infrastructure projects financed directly on a government-to-government basis. Massive amounts of foreign aid from developed countries and aid and loans from the IMF got channeled into the personal bank accounts of the head of state.
The reason that infrastructure projects have not worked well in a lot of poorer countries is the misapplication of western developed-country ideas about infrastructure in areas in which those don’t necessarily apply. And in the past, another fact was the environmental impact of these projects.
Given the first problem, who decides on what infrastructure projects aid will be spent?
Another historic problem is the tying of aid in ways that benefit corporations in western countries. Construction aid the requires management by a construction company in the donor country, for example.
The stimulus bill that passed the Congress was pretty simple in the way it channeled funds. States and federal agencies were asked what projects they had “shovel-ready” and what projects they had that met the overarching vision of the Obama administration. The means of distribution of funds already exist; accountability is easy to mandate because a lot of the organization required to do audits is already in place.
It’s easy to think that everything is a nail just because you have found a neat hammer.
Doing this sort of global infrastructure development is a very complex endeavor and hard to get right in sufficient time to fend off the critics.
There is global infrastructure that could help spur development in these countries. Global standards of transparency of government and corporate accounting. Global labor standards. A common visa, customs, and immigration standard looking toward a day in which global trade and travel is as unimpeded as travel between any of the 50 states.
Another potential areas that might fall in the infrastructure category is environmental restoration in poorer countries through massive application of alternative energy, building out from small scale demonstration projects of NGOs that have already proven themselves in practice.