Commentary

America’s Confidence Economy

LAGUNA BEACH – Financial markets seem convinced that the recent surge in business and consumer confidence in the US economy will soon be reflected in “hard” data, such as GDP growth, business investment, consumption, and wages. But economists and policymakers are not so sure. Whether their doubts are vindicated will matter for both the United States and the world economy.


Donald Trump’s election as US president has triggered a surge in positive economic sentiment, because he pledged that his administration would aggressively pursue the policy trifecta of deregulation, tax cuts and reform, and infrastructure construction. Republican majorities in both houses of Congress reinforced the positive sentiment, as they signaled that Trump would not face the kind of paralyzing gridlock that Barack Obama confronted for most of his presidency.

The surge in business and consumer sentiment reflects an assumption that is deeply rooted in the American psyche: that deregulation and tax cuts always unleash transformative pro-growth entrepreneurship. (To some outside the US, it is an assumption that sometimes looks a lot like blind faith.)

Of course, sentiment can go in both directions. Just as a “pro-business” stance like Trump’s can boost confidence, perhaps even excessively, the perception that a leader is “anti-business” can cause confidence to fall. Because sentiment can influence actual behavior, these shifts can have far-reaching impacts.

In his groundbreaking General Theory of Employment, Interest, and Money, John Maynard Keynes referred to “animal spirits” as “the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism, rather than mathematical expectations, whether moral or hedonistic or economic.” Jack Welch, who led General Electric for 20 years, is a case in point: he once stated that many of his own major business decisions had come “straight from the gut,” rather than from analytical models or detailed business forecasts.

But sentiment is not always an accurate gauge of actual economic developments and prospects. As the Nobel laureate Robert J. Shiller has shown, optimism can evolve into “irrational exuberance,” whereby investors take asset valuations to levels that are divorced from economic fundamentals. They may be able to keep those valuations inflated for quite a while, but there is only so far that sentiment can take companies and economies.

So far, the exuberant reaction of markets to Trump’s victory – all US stock indices have reached multiple record highs – has not been reflected in “hard data.” Moreover, economic forecasters have made only modest upward revisions to their growth projections.

It is not surprising that equity investors have responded to the surge in animal spirits by attempting to run ahead of a possible uptick in economic performance. After all, they are in the business of anticipating developments in the real economy and the corporate sector. In any case, they believe that they can quickly reverse their portfolio positions should their expectations change.

That is not the case for companies investing in new plants and equipment, which are less likely to change their behavior until announcements begin to be translated into real policies. But the longer they wait, the weaker the stimulus to economic activity and income, and the more consumers must rely on dissaving to translate their positive sentiment into actual purchases of goods and services.

It is in this context that the economy awaits a solid timeline for policy announcements to evolve into detailed design and durable implementation. While there is often some delay when political negotiations and trade-offs are involved, in this case, the sense of uncertainty may be heightened by policy-sequencing decisions. By deciding to begin with health-care reform – an inherently complicated and highly divisive issue in US politics – the Trump administration risks losing some of the political goodwill that could be needed to carry out the kinds of fiscal reform that markets are expecting.

Even if a bump in the economic data does arrive, it may not last, unless the Trump administration advances policies that enhance longer-term productivity, through, for example, education reform, apprenticeship programs, skills training, and labor retooling. The Trump administration would also have to refrain from pursuing protectionist trade measures that would disrupt the “spaghetti bowl” of cross-border value chains for both producers and consumers.

If improved confidence in the US economy does not translate into stronger hard data, unmet expectations for economic growth and corporate earnings could cause financial-market sentiment to slump, fueling market volatility and driving down asset prices. In such a scenario, the US engine could sputter, causing the entire global economy to suffer, especially if these economic challenges prompt the Trump administration to implement protectionist measures.

The US is on relatively strong footing to achieve higher economic growth. Indeed, by animating the economy’s animal spirits, the Trump administration has laid the groundwork for the private sector to do a lot of the heavy lifting. But there is more to do. Unless the Trump administration can work well with a cooperative Congress to translate market-motivating intentions into well-calibrated actions soon, the lagging hard data risks dragging down confidence, creating headwinds that extend well beyond financial volatility.

Mohamed A. El-Erian, Chief Economic Adviser at Allianz, was Chairman of US President Barack Obama’s Global Development Council and is the author of The Only Game in Town: Central Banks, Instability, and Avoiding the Next Collapse.

By Mohamed A. El-Erian

The Mispriced Risk of Infectious Diseases

NEW YORK – Global business leaders and investors are largely transfixed by two kinds of risk: macroeconomic and geopolitical. In the near term, this means a focus on the US Federal Reserve’s impending rate hikes and the upcoming elections in France and Germany.


Over the longer term, it means awareness of structural risks like high sovereign debt, demographic shifts, and natural-resource scarcity. But there is a third, arguably more pernicious, risk lurking below most decision-makers’ radar: infectious diseases.

According to the former director of the US Centers for Disease Control and Prevention, Tom Frieden, the world is at greater risk than ever from global health threats. People travel farther and more often. Supply chains, including for food and medicines, extend across the world. A poorly treated case of, say, tuberculosis (TB) in Asia or Africa can present in a hospital in the United States within days.

Against this background, scientists are concerned about the recent uptick in epidemics of diseases such as Zika, Ebola, and avian flu. And they are alarmed by the resurgence of life-threatening diseases such as influenza, HIV, malaria, and TB.

To be sure, in terms of fatalities, recent disease outbreaks and pandemics are a far cry from past global flu epidemics. Whereas the 2003 SARS epidemic resulted in 774 deaths, and the Ebola outbreak of 2014-2015 left 11,310 dead, the 1918-1920 flu epidemic claimed the lives of 100 million people – more than five times the number killed in the world war that had just ended. Indeed, some 5% of the world’s population perished.

But the risks from infectious diseases that we face today could intensify substantially, owing to the rise of anti-microbial resistance (AMR). According to the World Health Organization, “480,000 people develop multi-drug resistant TB each year, and drug resistance is starting to complicate the fight against HIV and malaria, as well.” Antibiotic resistance, the WHO cautions, is now present in every country, putting patients at risk of worse clinical outcomes and at greater risk of death, while increasing the burden on health systems.

England’s chief medical officer, Sally Davies, has warned that, if left unchecked, the growing impotence of drugs could be catastrophic. By 2050, she estimates, drug-resistant infections could be killing someone “every three seconds.” The Review on AMR estimates that, at that point, some ten million lives could be lost each year, at a cumulative cost to global economic output of $100 trillion. To put that into perspective, world GDP today totals $74 trillion per year.

Yet the potential long-term human and economic consequences of AMR of are not widely appreciated by the public and, in particular, by financial markets. In fact, protection from public health threats is one vital area where markets do not deliver efficiently. As a result, it is governments that usually bear the costs of prevention and treatment.

With government budgets already overstretched, coping with the intensifying health burden from AMR will be difficult, to say the least. Yet governments are unlikely to move fast to mitigate this risk. On the contrary, experience indicates that governments often struggle to align public spending with underlying or mounting problems, such as public-health threats, until they reach a crisis point.

More people died of cancer in the US last year than in combat. In fact, last year’s 580,000 cancer deaths exceed the roughly 430,000 battle deaths, on average, in World War I, World War II, the

Korean War, the Vietnam War, and the Gulf War. Yet government spending on cancer averages approximately $4 billion per year. That is just over 0.5% of the annual military budget of roughly $718 billion.

Of course, government budget-allocation decisions are complicated and dogged by political imperatives. The US military employs some three million people, making it the single largest employer in the world, and there is substantial political pressure from some constituencies to place the highest priority on America’s military dominance.

But it is not just a matter of how much is spent; it is also a matter of when. Governments don’t wait for war to break out before investing in the military. Yet they do tend to wait for crises to erupt before they invest in fighting infectious diseases.

The world spent $15 billion on its emergency response to the SARS epidemic and $40 billion on its response to Ebola. In 1918, the crisis response to the flu pandemic cost some $17.5 trillion. Had countries spent more on mitigating the risk of such disease outbreaks – for example, by fortifying their health-care systems and promoting responsible use of antibiotics – those huge emergency payouts may not have been necessary. At the very least, they probably would have been smaller.

In this sense, the fight against infectious diseases closely resembles the fight against climate change. Though the threat is substantial, it is not immediate, so governments continue to pursue other priorities, allowing the threat to grow, largely out of sight. As a result, it is not adequately priced into the markets.

When the crisis finally erupts, the true scale of the threat will become clear. But by that point, it will be much more difficult and expensive to contain, resulting in far more casualties. Unfortunately, that point may be closer than anyone – government or investor – expects.

Dambisa Moyo, an economist and author, sits on the board of directors of a number of global corporations.

 

Lessons From an Age of Progress

WASHINGTON, DC – Imagine that you are a committed internationalist during a tumultuous period in global politics, and you are now grappling with the outcome of a nail-bitingly close US presidential election. The winner is a Republican who ran partly on a message of foreign-policy retrenchment, against a Democrat who represented continuity with the outgoing administration.


Now imagine that the incoming administration collaborates with other countries to help save 25 million lives over the next 15 years. Until this last part, the scenario probably felt all too current for many readers, a large number of whom are still adjusting to the reality of Donald Trump’s presidency. But this is also how many people felt back in 2001, when George W. Bush beat Al Gore, following an extraordinary Supreme Court decision that ended the vote recount in Florida.

There are certainly limits to any comparison between then and now; but it is worth noting that much of the world seemed mired in chaos in the early 2000s, too. Many regions were beset by economic crisis, and political protests met world leaders whenever they gathered. The United States government’s policy toward the Middle East was squarely at odds with that of the United Nations, and violent extremism was on the rise.

It was against this backdrop that roughly 25 million lives – mostly children under age five and people infected with HIV/AIDS – were saved, owing to accelerated progress in global development from around 2001, early in the Bush administration, to 2015, near the end of Barack Obama’s second term.

My Brookings Institution colleague Krista Rasmussen and I recently published a study that assesses the changing pace of progress during the era of the Millennium Development Goals, which world leaders established in 2000 to tackle by 2015 the most severe problems associated with global poverty. We found that roughly two-thirds of the lives saved during this period were in Africa, while around one-fifth were in China and India, and the remainders were spread around the rest of the developing world.

Progress accelerated in other areas as well. Since 2000, at least 59 million more children have completed primary school than would have if 1990s trends had continued; and more than 470 million additional people were lifted out of extreme poverty than would have been if the pace of improvement from 1990 to 2002 had continued.

Unfortunately, we found that progress toward other goals has been less impressive. While the world made major gains in tackling hunger and expanding access to drinking water, it did not significantly improve upon what could have been expected relative to 1990s trends. And with respect to sanitation – namely, having access to a toilet – the already slow rate of progress has not accelerated.

These results point to three key lessons for navigating today’s uncertain geopolitical waters. First, the past need not be prologue: breakthroughs are always possible, even when they are unexpected. In the early 2000s, prospects for improved international cooperation were bleak. In December 1999, mass protests now known as the “Battle in Seattle” prevented a World Trade Organization Ministerial Conference from finishing its proceedings. And in July 2001, a protester was shot dead amid riots outside the G8 summit in Genoa, Italy. But better angels prevailed, and the world came together to take action on life-or-death global health issues.

Second, breakthroughs are typically driven by pragmatic technical efforts to disrupt the status quo. For example, rapid progress on global health emerged from scientific discoveries and large investments in innovative new institutions. These include the Global Fund to Fight AIDS, Tuberculosis, and Malaria; the Global Alliance for Vaccines and Immunizations (now known as Gavi, the Vaccine Alliance); the US President’s Emergency Plan for AIDS Relief; and many public-private collaborations seeded by the Bill and Melinda Gates Foundation, among others.

Third, political leaders can play a pivotal role in pushing for new approaches and solutions to global problems. Who in early 2001 could have guessed that Bush – who would later lead the US into a devastating war in Iraq – would become a hero in the global fight against AIDS and malaria? The Bush administration ultimately allocated much more to foreign-aid budgets than Bill Clinton did during his two presidential terms.

These three lessons should be applied to the next frontier of global challenges. In 2015, all countries agreed to a new set of ambitious Sustainable Development Goals, to be achieved by 2030. The SDGs aim to eliminate extreme poverty and hunger, reduce inequalities within and between countries, and ensure a sustainable future for our planet. Many people consider these objectives to be too ambitious, given the daunting problems in the world today. But achieving these goals is essential for improving living standards everywhere.

Despite how disordered the world feels in 2017, the potential for renewed progress at any given moment is greater than most people think possible. Realizing this potential requires certain key ingredients, such as institutional and disruptive innovations in science and business. And it requires that politicians of all stripes do their part. When the right elements come together, the potential for human achievement is enormous. That is why it is reasonable to hope that the next round of victories in global development will turn out to be even more impressive than the last. John W. McArthur is a senior fellow at the Brookings Institution.

By John W. McArthur

Where Has All the Water Gone?

MANILA – We live on a parched planet. Farmers till arid pastureland, and policymakers fret over empty reservoirs, dry rivers, and thirsty cities. And that only scratches the surface – literally – of the world’s water problem. Subterranean aquifers, which amount to the world’s reserve water tank, are also running dry. If this continues, the consequences could be dire, especially for water-stressed and fast-growing Asia.


Subterranean aquifers are repositories of water located deep underground, in permeable rock, soil, or sand. And they contain about 100 times the amount of water found on the earth’s surface, in streams, lakes, rivers, and wetlands. If you’re in central Africa, South America, or some parts of Europe, you’re probably standing just a few hundred feet above one.

Surface water resources, such as desalinated seawater or recycled wastewater, will not close the global gap – predicted to reach 40% by 2030 – between water supply and demand. So subterranean aquifers are increasingly being exploited for agriculture, power generation, and daily use in fast-growing cities (urban Asia is growing at a rate of 120,000 people per day).

Today, about 30% of the world’s liquid freshwater comes from subterranean aquifers. And one-third of the 37 largest aquifers studied by the University of California between 2003 and 2013 were severely depleted, receiving little or no replenishment from rainfall. Some of the most stressed aquifers are in the driest regions, including Asia, up to 88% of which is water-stressed.

Asia contains around one-third of the world’s land irrigated by groundwater, with India, China, and Pakistan being the biggest consumers. South Asia alone accounts for half the groundwater used globally. But Asia’s aquifers – many of which were formed millennia ago, when areas like northern China had a more humid climate – are no longer being replenished regularly by rainfall.

Instead, boreholes are getting deeper and water tables are falling. In Pakistan’s Punjab Province, over-pumping is lowering the water table by up to a half-meter (20 inches) per year, threatening future food and water security and making thirsty crops like sugarcane and rice tougher to grow.

Asia’s surging population – which could jump by 25%, topping five billion, by 2050 – will put even more stress on food, energy, and water supplies. Globally, 60% more food will be needed by then, with agriculture soaking up increasingly scarce freshwater. Climate change will exacerbate conditions further.

But the problem extends beyond water depletion. Over-pumping of groundwater is already leading to soil subsidence, causing some Asian cities to sink. By 2030, as much as 80% of North Jakarta could be below sea level. Parts of Beijing are sinking by several centimeters per year, according to some estimates.

Moreover, depleted aquifers near coastlines are prone to contamination from saltwater, rendering land barren. Some aquifers are contaminated by arsenic, which can occur naturally deep underground. Nature Geoscience estimates that more than 60% of groundwater in the Indo-Gangetic aquifer is contaminated by arsenic or salt. In Bangladesh, water tainted by arsenic is blamed for more than 40,000 deaths each year.

The first step toward remedying this situation is to establish precisely how much groundwater is left and how it is being used – not easy, but not impossible either. NASA’s Gravity Recovery and Climate Experiment satellite provides information on changes in the earth’s gravity due to fluctuating water volumes. And by applying remote sensing technology to river basins, we can determine how much surface water is available and who is consuming what.

Another important step is to improve the pricing of groundwater. China has run a pilot program in which farmers had to pay extra if they pumped more than their allocation. Similar approaches have worked well in Australia and Mexico. But such measures can be politically difficult to implement. The key to success will be to help countries not only to design the right policies, but also to create the legal frameworks needed to establish and enforce them.

Even more politically difficult would be the elimination of electricity and gas subsidies, which encourage farmers to pump groundwater all day. If such subsidies can’t be withdrawn, there are innovative alternatives that could curb over-pumping.

For example, in Gujarat, India, the government has reduced groundwater pumping by offering power for just eight hours per day. Farmers have the power they need, but can’t pump all day long. Another approach could be to buy back surplus power from farmers to feed into the grid. That would not just reduce over-pumping, but also help to supplement rural incomes.

Efforts to replenish aquifers could also be pursued. A pilot program in India’s Uttar Pradesh state collects excess floodwater in storage ponds, from which water seeps into the water table.

The final step would be to improve management of surface water, thereby reducing the temptation to turn to groundwater in the first place. Around 80% of wastewater is returned untreated to rivers, often contaminating them. Taking stronger action to stop this would be far simpler – including logistically and politically – than conserving groundwater.

Subterranean aquifers should be the reservoir of last resort. If we don’t protect them today, future generations will pay a steep – or even an existential – price. Yasmin Siddiqi is Principal Water Resources Specialist at the Asian Development Bank.

By Yasmin Siddiqi

Democracy Over Sovereignty in Europe

MILAN – The future of the European Union may not officially be on the ballot in the upcoming elections in the Netherlands, France, Germany, and Italy, but the results will go a long way towards determining Europe’s fate.


Anti-EU sentiment is more widespread than ever, as demonstrated by the feverish campaigns of right-wing populist insurgents like Geert Wilders in the Netherlands and Marine Le Pen in France. But there are also signs of support for revamping and reinventing the EU – a message being espoused by the likes of France’s Emmanuel Macron and Germany’s Martin Schulz.

Any pro-EU campaign, to be convincing, must address the problems stemming from the euro. Adopted by 19 of the EU’s 28 member countries (27, after Brexit), the common currency has become a major source of disillusionment with European integration. Though the euro crisis, in its most acute form, is over, the eurozone remains a fragile construct. In the event of renewed volatility, doubt about its survival could easily return.

At the root of the common currency’s fragility are flaws in the Maastricht Treaty framework, which dictates that eurozone members maintain a common monetary policy and individual fiscal policies that conform to shared fiscal rules. But the mere existence of fiscal rules has proved insufficient to guarantee compliance, and there is no enforcement mechanism at the EU level to ensure adequate fiscal discipline.

Unless this changes, there will always be the risk that weaker members will accumulate unsustainable debts, forcing stronger members to choose between providing politically untenable transfers and allowing members to exit, creating instability that could bring down the entire project. A victory for pro-European forces in the coming elections could provide the opportunity – perhaps the last opportunity – to pursue the changes to the Maastricht Treaty that are needed.

Those changes will not be easy to carry out. Europeans will need to accept a fundamental shift in the basis of the eurozone’s legitimacy, moving beyond a simple commitment to rules-based economic governance to accept the kind of discretionary approach taken by an authority with democratic legitimacy.

Without political union, the adoption of a rules-based approach to governance is understandable. It aligns with the logic of central-bank independence: unelected policymakers are committed to a straightforward set of rules, such as targeting a particular inflation rate, against which they can be held accountable. But that logic hasn’t worked for the eurozone, where concrete rules have proved inadequate to prevent pressure for redistribution that voters do not support.

Now that this has become apparent, some advocate a greater role for the market in enforcing discipline. Proposals for a new sovereign-lending framework that allows for orderly restructuring reflect this reasoning.

One proposal calls for the European Stability Mechanism to adopt a system similar to that of the International Monetary Fund, in order to prevent lending to insolvent countries and force reprofiling or restructuring after a certain debt threshold is crossed. Such an approach would make the EU’s “no bailout” rule more credible and avoid placing an excessive burden on monetary policy.

But it would be naive to believe that such a scheme would solve the problem. Fear of contagion would always be justified in a monetary union, where the externalities of a debt crisis in one country always risks infecting the rest of the union. Given this, a framework based exclusively on market mechanisms would be prone to instability.

This is not to say that a market-driven debt-restructuring framework has no place in eurozone reform. It does, and so does a set of simple common rules. But, to support a shared fiscal stance and achieve a better mix of monetary and fiscal policy, a third component is needed: an independent federal fiscal authority focused on creating risk-sharing mechanisms. Such an authority would need a small budget and some discretionary power, in order to be able to adjust its approach in response to events.

Of course, if such a system were perceived to be undermining member states’ sovereignty it would not be politically feasible. Its critics would need to be convinced of its democratic legitimacy. Without full political union, that could be achieved with an emphasis on transparency, independence, and a much larger role for the European Parliament, possibly in coordination with national parliaments.

After all, the central issue facing Europe is not sovereignty, as the right-wing populists claim, but democracy. (With integrated markets, full national sovereignty is an illusion.) What Europe needs today is a treaty that expands democratic legitimacy at the EU level. Preserving national sovereignty based on institutions designed for the far less integrated European economy of the nineteenth century is a recipe for failure. Lucrezia Reichlin, a former director of research at the ECB, is Professor of Economics at the London Business School.

By Lucrezia Reichlin

How Fake News Wins

WASHINGTON, DC – In response to the wave of fake news that inundated the recent presidential election campaign in the United States, much attention has been devoted to those who produce or spread those stories. The assumption is that if news outlets were to report only the “facts,” readers and viewers would always reach the right conclusion about a given story.


But this approach addresses only half of the equation. Yes, we need news organizations to deliver reliable information; but we also need those receiving it to be savvy consumers.

For decades, the US government has supported programs to foster independent media in authoritarian, resource-deprived, or dysfunctional countries. But these programs tacitly assume that the US itself is immune to the problems people in other countries encounter when they create or consume information. We in the US also assume that American media, sustained by advertising, will continue to thrive; that independent journalism is the norm; and that most people are capable of thinking critically and making sound judgments about the information they receive.

In fact, some of the lessons that we have learned while supporting vibrant information gathering and distribution abroad are equally relevant to the US. In the 2016 election, the personal beliefs that drove millions of voters’ decisions were based not only on each person’s experiences and the information they accessed, but also on how they processed those experiences and that information. Voters’ own relationships with content producers, their motivation to believe or disbelieve facts, and their critical thinking skills all determined how they interpreted and acted on information.

In the election, most mainstream pundits did not seem to “get” millions of Americans’ beliefs or viewpoints, so it is little wonder that those millions of Americans were turned off by the pundits’ incessant chatter. To these voters, the pundits were simply information peddlers with no attachments to the issues that matter. Men and women talking in front of TV cameras are too far removed from the factories, offices, bars, churches, schools, and hospitals where viewers form the relationships that determine how they process information. The so-called digital revolution did not render superfluous the importance of human connection in shaping people’s interpretation and response to the information they receive.

Relationships are built on trust, which is essential for ensuring that consumers accept information that challenges their closely held beliefs. But, according to Gallup, only 32% of Americans have a “great deal” or “fair amount” of trust in traditional media outlets – an all-time low. That is deeply problematic, and it suggests that many citizens are throwing out the good information with the bad.

As with any other good, how information is consumed reflects economic and political opportunities, personal incentives, and institutional or cultural norms. Workers in Ohio whose wages have stagnated, or unemployed voters in Michigan whose jobs have migrated overseas, will consume information in a way that reflects their economic situation. Not surprisingly, they will often select sources – whether credible or not – that are critical of globalization and current fiscal and economic policies.

An ample supply of sound information is not sufficient to make good choices; news consumers need critical-thinking skills. Information is much like the food we eat: we need to understand its ingredients, and where and how it is produced, and the effects of overconsumption.

It will probably take decades to rebuild trusting relationships between consumers and mainstream news media. Information consumers will always have biases and incentives to select one piece of information over another. Even so, we can improve critical-thinking skills so that citizens know how to pick trustworthy sources, and resist their own biases.

Cultivating critical-thinking skills takes time and practice, which is why it is more important than ever to invest in education. Some of the models that have been used abroad may work in the US, too. For example, in Ukraine, a recent initiative carried out by IREX mobilized librarians in an effort to neutralize the detrimental effects of Kremlin-funded propaganda. Fifteen thousand Ukrainians were taught concrete skills in avoiding emotional manipulation, verifying sources and credentials, detecting paid content and hate speech, and debunking fake videos and photos.

The results were impressive: participants improved their ability to distinguish trustworthy news from false news by 24%. Better yet, they then trained hundreds more people to detect disinformation, thus multiplying the initiative’s overall impact.

With a rather modest investment, we can make teaching these skills a standard practice in school curricula. Philanthropists can also create or support grassroots organizations that work with citizens to strengthen their ability to consume information critically.

Accurate information and critical-thinking skills are indispensable to democracy. We cannot take them for granted, even in America. That is how fake news wins.

Aleksander Dardeli is Executive Vice President of IREX, a global nonprofit organization that works to strengthen good governance and access to quality information and education.

By Aleksander Dardeli

A Blueprint for Ending Child Marriage

DHAKA – When a young girl is pushed into marriage, the damage can last long after her wedding day. Research shows that girls who marry before the age of 18 receive less schooling than those who marry later, face a higher risk of domestic abuse, and suffer a lifetime of adverse effects on their physical and mental wellbeing.


Yet child marriage continues to be a common practice in the developing world. According to UNICEF, there are more than 700 million women alive today who were married before they turned 18. One in three women aged 20-24 were married or in a union while still a child.

What can be done to end this harmful practice? Bangladesh offers both a possible blueprint and a cautionary tale.

Today, Bangladesh has the world’s highest rate of marriage among girls under 15, and violence against Bangladeshi women is on the rise. Unfortunately, legal efforts to protect women and girls by criminalizing aspects of child marriage face significant obstacles, due to the prevailing political culture, the accommodation of religious extremists, and the persistence of gender bias.

The existing law penalizing aspects of child marriage – the Child Marriage Restraint Act (CMRA) of 1929 – dates to the British colonial period. The law stipulates terms of imprisonment or a fine for anyone who “contracts,” “solemnizes,” or arranges a marriage with a girl under 18. But, with some recent exceptions, it is frequently ignored and rarely enforced.

In the last three years, various drafts of a bill to give the law more teeth have been proposed. But the proposals focused on criminalizing facilitation or participation; none would invalidate child marriage itself. Individuals who officiate at child marriages or adults who take a child bride may violate the law, but the marriage itself would remain legal.

Each version of the bill has kept open this legal route for child marriage. Moreover, while the drafts have introduced stiffer penalties for perpetrators – and imposed greater responsibility on officials to take action – they have also created more space for exceptions. Marriage below the age of 18 is already permitted in Bangladesh by personal laws based on religion. The newly passed replacement of the CMRA – the CMRA 2017 – allows for exceptions in “special cases,” which remain entirely undefined.

That “special cases” clause was earlier interpreted by an official to mean in “for the sake of honor” – which presumably could include pregnancy following a rape – as long as the marriage has a court’s approval and the parents’ consent. Such a framework could ultimately erode legal protections – such as the right to consent – that girls have had for almost a century.

Despite these legal challenges, Bangladesh’s experience may offer hope. Notwithstanding the current child marriage concerns, Bangladesh has made important strides in improving the lives of girls and women during the last three decades. A generation ago, it was unusual for girls to attend primary school. Today, thanks to a broad political consensus on the value of female education, gender parity has largely been achieved in both primary and secondary schooling.

Even on the issue of child marriage, political developments have been encouraging. As two of us have noted elsewhere, at the July 2014 Girl Summit in London, the Bangladeshi government said it would aim to eradicate marriage by girls below the age of 15 by 2021. Targeting marriages with such young girls may be the right approach. Much work remains, and pressure to make good on these commitments is mounting. But there seems to be at least some will to act.

When it comes to persuading some of the Bangladeshi public, however, progress has stalled. Communities in South Asia often value girls less than boys because of limited opportunities to acquire skills and access salaried jobs. Early marriage is often considered the best option to secure a girl’s future. But the constraints placed on young women originate from the patriarchal norms that dominate the community and the household.

Conservative values that oppose giving adolescent girls and young women full control over their life choices are pervasive, because family “honor,” for them, is closely tied to the perceived “purity” of their daughters and brides. An unmarried adolescent girl’s reputation must be carefully protected, because its loss could damage her family’s social standing considerably. The government has often alluded to this line of reasoning to justify proposed reforms to the child marriage law. The “special cases” clause in CMRA 2017 could be an attempt to pre-empt “patriarchal resistance” or a backlash from religious extremists.

But the social cost of allowing exceptions may be too high. Bangladesh’s success in empowering girls and ending child marriage will hinge on strengthening the rule of law by closing existing loopholes. Crucially, such actions must be accompanied by sustained social campaigns and targeted educational programs that convince the public to support the goal, while empowering girls themselves.

As the UNICEF Goodwill Ambassador Angélique Kidjo has said, “long-lasting, fundamental changes come from within communities, and they depend on engaging both mothers and fathers in finding solutions that make a difference in their daughters’ lives.” Some recent successful efforts to address child marriage do precisely that.

It is still possible for Bangladesh to meet the Sustainable Development Goal of eliminating child marriage by 2030. If the government leads, we are confident that the people of Bangladesh will eagerly follow.

Sajeda Amin is a senior associate at the Population Council in New York City. M Niaz Asadullah is Professor of Development Economics at the University of Malaya, in Kuala Lumpur, Research Fellow at the IZA Institute of Labor Economics, and Visiting Fellow at the Center on Skills, Knowledge, and Organization Performance (SKOPE), the University of Oxford. Sara Hossain is a lawyer at the Supreme Court of Bangladesh and an honorary executive director of the Bangladesh Legal Aid and Services Trust. Zaki Wahhaj is a senior lecturer at the University of Kent.

By Sajeda Amin, M Niaz Asadullah, Sara Hossain, and Zaki Wahhaj

The Threat of Threats

PARIS – “Tell me what you fear and I will tell you what has happened to you,” the psychologist D.W. Winnicott wrote in the early twentieth century. It sounds straightforward, until one considers how much has happened – and how much there is to fear.


The sheer diversity of the threats facing the world today evokes the tragic farces of Luigi Pirandello. In the West, some focus on religious extremism – in particular, the terrorism supposedly being carried out in the name of Islam.

Others point to Russia, warning of a new cold war, already apparent in Eastern Europe and the cyber realm. Still others, highlighting the rise of virulent right-wing populism in the United States and parts of Europe, declare that the real danger lies within.

Even those who recognize all of these threats struggle to prioritize them – which is vital to addressing them. If, say, Islamist terrorism is the principal threat, then it might make sense for the West to align itself with Russia in the fight against it.

But what if right-wing populism, which the Kremlin actively supports, is the biggest menace? In that case, aligning with Russia could prove destructive for Western liberal democracy. In fact, exaggerating the threat of Islamist terrorism, while downplaying the threat of right-wing populism, could well play directly into Russian President Vladimir Putin’s hands.

The struggle to prioritize threats is not exclusive to the West. In the Middle East, countries are trying to figure out who should be contained. Among the frontrunners are the Islamic State (ISIS), Iran, and Israel.

For Israel (and Saudi Arabia), the answer is clearly Iran. For Iran, the answer is Israel (despite high tensions with Saudi Arabia). The West, too, has opinions on the matter: the European Union is convinced that ISIS should be the top priority. A few months ago, the US might have agreed, but President Donald Trump, despite citing the eradication of ISIS as a major policy goal, may also be prepared to fight in Israel’s corner to contain Iran.

In Asia, too, countries are finding it difficult to sort the dangers they face. Should they focus on a North Korean regime that is as volatile as ever, and that recently launched a ballistic missile toward the sea off its eastern coast? Or should they be keeping their eyes on China, which has gradually expanded both its regional influence and its revanchist claims?

For Japan and South Korea, North Korea seems to be the top priority. But for Vietnam, Indonesia, and Singapore, it is difficult to discern whether North Korea actually poses a greater threat than the giant and increasingly nationalistic China. This is to say nothing of other acute risks, such as strains between two local nuclear powers, Pakistan and India.

When it comes to prioritizing today’s threats, there are no easy answers. But unless we find them, we risk repeating some of history’s great mistakes.

The French philosopher Paul Valéry believed that history teaches nothing, “for it contains everything and furnishes examples of everything.” But, at this point, it is difficult not to make historical comparisons, particularly in Europe.

In the late nineteenth century, surging nationalism underpinned an era of revolutions and civil wars. In the 1930s, the rise of populism in Europe opened the way for disaster. Many Europeans, so fearful of the “reds,” were prepared to compromise with the “browns.” It didn’t take long to find out the true threat the Nazis posed.

The lesson is clear. Rather that attempting to prioritize the threats we face – compromising on one goal to advance another – we must tackle them all at once. As the assassinated prime minister of Israel, Yitzhak Rabin, used to say, we should “fight terrorism as if there is no peace process, and pursue peace as if there is no terrorism.”

The battle against Islamist terrorism is important, but it should not overshadow – much less undermine – the imperative to protect our democracies from the threat of right-wing populism. To accept, for example, the victory of the National Front’s Marine Le Pen in France’s presidential election, arguing that it is at least better than allowing radical Islamism to proliferate further, is to ignore the lessons of history – and, indeed, to ignore reality.

ISIS may be born of a culture of humiliation and driven by a spirit of revenge, as was Nazism, but it does not possess anything like the industrial and military resources of Germany in the 1930s. ISIS is not the “modern Nazism” we should fear; it is the terrorism that, in the spirit of Rabin, we should fight.

The peace we should pursue, meanwhile, is within our own countries. To allow right-wing populism to continue to advance is to succumb to fear, rather than behaving according to a clear-headed analysis of our interests and, above all, our values. It is to compromise with the brown shirts for fear of the reds.

There was a time, not so long ago, when the EU – a model of reconciliation, peace, and prosperity – inspired countries from Latin America to Asia. Today, Europe, along with the once venerated US, is a model of fear – and it is scaring others. If Europeans cannot develop – with lucidity, firmness, and dedication – enlightened solutions to the threats they face, who can? Dominique Moisi is Senior Counselor at the Institut Montaigne in Paris.

By Dominique Moisi

The Three Trumps

NEW YORK – Never in recent history has a change of leadership attracted as much attention and speculation as Donald Trump’s rise to the US presidency. What this change signifies and what it portends requires unraveling three mysteries, because there are three versions of Trump.


The first Trump is the friend of Russian President Vladimir Putin. Trump’s enthusiasm for Putin is the most consistent part of his rhetoric. Despite a worldview that regards the United States as a victim of foreign powers – China, Mexico, Iran, the European Union – Trump’s ardor for Putin burns bright.

Depending on who is opining, Trump is either a naive admirer of strongmen like Putin or a long-time tool of Russian intelligence. There is almost surely a backstory here, one that could destroy Trump’s administration if some of the lurid rumors are confirmed. We now know that some key dates and details in the infamous “dossier” on Trump’s relations with Putin, assembled by a former British intelligence officer, have been verified.

A growing body of circumstantial evidence suggests that Trump has been backed by Russian money for decades. Russian oligarchs may have saved Trump from personal bankruptcy, and one reportedly traveled to a number of Trump’s campaign stops, perhaps acting as a go-between with the Kremlin. And many top members of Trump’s team – including his first campaign manager, Paul Manafort; recently-ousted National Security Adviser Michael Flynn; former ExxonMobil CEO and now Secretary of State Rex Tillerson; and hedge-fund magnate and Commerce Secretary Wilbur Ross – all have significant business dealings with Russia or Russian oligarchs.

The second version of Trump is a greedy businessman. Trump seems intent on transforming the presidency into another source of personal wealth. For most people, the presidency would seem to be its own reward, without cashing in (at least not while in office). Not for Trump. Contrary to all previous norms, and in violation of the standards set by the Office of Government Ethics, Trump is keeping his business empire, while family members maneuver to monetize the Trump name in new investments around the world.

The third Trump is a populist and demagogue. Trump is a non-stop font of lies, who brushes aside the inevitable corrections by the media with the charge of “fake news.” For the first time in modern American history, the president is aggressively demonizing the press. This past week, the White House barred the New York Times, CNN, Politico, and the Los Angeles Times from a news briefing by the press secretary.

On some interpretations, Trump’s demagogy is in the service of his chief strategist, Stephen Bannon, who defends a dark vision of a coming war of civilizations. By raising fear to the highest possible level, Trump aims to create a violent America-first nationalism. Hermann Göring chillingly explained the formula from his Nuremberg jail cell after World War II: “[T]he people can always be brought to the bidding of the leaders. That is easy. All you have to do is tell them they are being attacked and denounce the pacifists for lack of patriotism and exposing the country to danger. It works the same way in any country.”

Another theory is that all three Trumps – friend of Putin, wealth maximizer, and demagogue – are really one: Trump the businessman has long been supported by the Russians, who have used him for years as a front for laundered money. One might say they won the jackpot, parlaying a small bet – on manipulating the outcome of an election they most likely never expected him to win – into a huge payoff. On this interpretation, Trump’s attacks on the press, the intelligence agencies, and the FBI specifically aim to discredit these organizations in advance of further revelations regarding the Trump-Russia dealings.

Those of us who lived through Watergate remember how difficult it was to hold Richard Nixon to account. Without the revelation of secret White House tapes, Nixon almost surely would have escaped impeachment and served out his term. The same was true with Flynn, who lied time and again to the public, and to Vice President Michael Pence, about his communications with the Russian ambassador before he assumed his post. Yet, like Nixon, he was tripped up only because his lies were recorded, in this case by the US intelligence agencies.

When Flynn’s lies were exposed, Trump’s reaction, characteristically, was to attack the leak, not the lies. The main lesson of Washington, and indeed of strongman politics in general, is that lying is the first, not last, resort.

If Congress has enough honest members, a majority, knowing that Republicans will not police Republicans, will demand an independent investigation of Trump’s Russia ties. Republican Senator Rand Paul was explicit on this point, declaring that it “makes no sense” for Republicans to investigate Republicans. Trump seems intent on turning up the pressure on the FBI, the intelligence agencies, the courts, and the media to back off.

Demagogues survive because of public support, which they try to maintain through appeals to greed, nationalism, patriotism, racism, and fear. They shower their supporters with short-lived cash, in the form of tax cuts and income transfers, paid for by running up the public debt and leaving the bill to future generations. Trump has so far kept America’s plutocrats happy, through promises of unaffordable tax cuts, while mesmerizing his white working-class followers with executive orders to deport illegal immigrants and bar arrivals from Muslim-majority countries.

None of this has made Trump very popular. His approval ratings are historically low for a new president, around 40%, with roughly 55% of respondents disapproving. Judicial challenges to executive actions, fights with the media, tensions stemming from rising budget deficits, and new revelations regarding Trump and Russia, will keep the pot boiling – and Trump’s public support could evaporate.

In that case, Republican leaders are more likely to turn on Trump. But no one should ever underestimate a demagogue’s willingness to use fear and violence – even war – to maintain power. And if Putin is indeed his backer and partner, Trump’s temptations will be strong.

Jeffrey D. Sachs, Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is Director of Columbia’s Center for Sustainable Development and the UN Sustainable Development Solutions Network. By Jeffrey D. Sachs

Checks and Balances Before Roads and Bridges

WASHINGTON, DC – In the 2016 American presidential election, Hillary Clinton and Donald Trump agreed that the US economy is suffering from dilapidated infrastructure, and both called for greater investment in renovating and upgrading the country’s public capital stock. Now that the Trump administration is preparing its first budget outline, its initiatives in this area will be a central focus of attention.


The United States is not alone. In fact, infrastructure gaps are an even more urgent problem in the rest of the world. Other advanced economies also need to revive moribund investment, and emerging economies need to prepare for population growth, increased consumption, and higher demand for transportation spending.

Initiatives adopted in the aftermath of the 2008 global financial crisis are beginning to promote infrastructure investment. In the European Union, the Juncker Plan – which draws on EU funds to help finance riskier and more innovative projects – aims to generate more than $300 billion in investment between 2016 and 2018.

And there is an even greater push for infrastructure investment in emerging economies – especially China, which is pursuing projects both at home and abroad. In recent years, China has set up domestically funded institutions such as the Silk Road Fund and spurred the establishment of new international financial institutions such as the Asian Infrastructure Investment Bank.

When done well, infrastructure investment can revive flagging economies and pay for itself, by galvanizing private-sector activity and fostering economic growth. But when done poorly, public infrastructure spending can lead to corruption and waste, with taxpayers footing the bill for “bridges to nowhere.” Properly executed infrastructure investment entails more than just financing; it also requires that all the myriad details of a project’s selection, design, and implementation be closely managed.

And here, the keys to success are not just professional skill and technocratic expertise. They are also transparency and a free press. Citizens should have accurate facts about a project, so that they can monitor its progress and pressure policymakers to protect the public interest.

In a new book, Tomas Hellebrandt and I project that consumer spending on transportation will quadruple by 2035 in Sub-Saharan Africa, India, China, and other emerging Asian countries.

People who earn $200 per year spend only 1% of their income on transportation, compared to 18% for people earning $20,000. In the next two decades, the number of people earning $6,000-$20,000 will increase by more than one billion, and many of them will purchase their first car. Meanwhile, the number of people with annual incomes of $20,000 and above will increase by almost 800 million, and many of them will begin to fly for leisure.

Transportation networks in emerging economies will have to expand vastly to keep up with this growing demand. And while advanced economies already have extensive transportation infrastructure and stable populations, their networks urgently need renovation and repair.

Emerging countries will be able to muster sufficient financing for infrastructure only if they expand the role of the private sector; pension funds and life insurance companies, in particular, could furnish vast resources. But to capitalize on this opportunity, prudential requirements for such investors must be loosened, so that they can hold diversified portfolios of infrastructure projects. And co-investment platforms with multilateral and regional development banks should be established, to boost the credibility of these investments.

To attract private investors, governments will need to maintain a stable regulatory environment that is free from arbitrary interference. At the same time, they will have to monitor and disclose fiscal obligations from projects that involve private participation, such as what Chile now does routinely. This will help to prevent government guarantees for public-private partnerships from imposing budgetary costs equivalent to one or more points of GDP, as has happened in Colombia, Indonesia, and Portugal.

Governments will need to foster a culture of transparency to ensure that financing is put to productive use – rather than illicitly syphoned off or directed to low-value-added projects for political purposes. Tenders and key contract features should be routinely published, and good record keeping and quality control must be maintained throughout the procurement process and contract performance.

To deter fraud, governments should reward whistleblowers, and protect them from retaliation. Many of the emerging countries where investment is most needed must urgently reform their institutional framework for selecting and implementing infrastructure projects. But corruption afflicts all countries to some extent, so advanced countries also need to protect infrastructure projects from undue private influence and arbitrary official interference.

Successfully boosting infrastructure investment in emerging economies is in everybody’s interest. And with emerging economies now at the forefront of the fight against climate change, the world will benefit even more if investments in these countries are steered toward green-infrastructure projects. Building new metro-railway networks, instead of roads, would help to reduce carbon dioxide emissions for decades to come.

Advanced countries can help in this effort by supporting green-technology research and development, and by providing financial incentives for climate-friendly infrastructure investment through export credit agencies and multilateral and regional development banks. With an open and transparent international procurement system, the most efficient technologies would then come out on top.

Infrastructure investment holds much promise, but to reap its benefits, policymakers in emerging economies will need to strengthen their institutional frameworks for procurement sooner rather than later. And policymakers in advanced economies should preserve and apply well-known checks and balances, to keep the project-selection playing field level, and to permit monitoring implementation from start to finish.

The views expressed here are those of the author, and do not necessarily represent the views of the IMF, its Executive Board, or IMF Management.

Paolo Mauro, Assistant Director in the African Department at the International Monetary Fund, coauthored World on the Move: Consumption Patterns in a More Equal Global Economy with Tomas Hellebrandt while a senior fellow at the Peterson Institute of International Economics.

By Paolo Mauro

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