Universal Education’s Moment of Truth

LONDON – For nearly seven decades of a tumultuous century, the Universal Declaration of Human Rights has served as a beacon of hope worldwide. But some of its finely crafted provisions have come back to haunt us in the form of some shocking new statistics.

Article 26 of the declaration states explicitly that every child has the right to free primary education. Yet, 69 years after that pledge, a record number of children – some 70 million – are caught in the crossfire of humanitarian emergencies that are denying them basic rights and placing their futures in jeopardy. Of these, more than 31 million girls and boys are displaced from their homes, and 11 million have been forced to flee their countries.

Compared to other children, young people displaced by conflict and crisis are half as likely to attend school. Not surprisingly, they are also the most likely victims of child labor, child marriage, and child trafficking – an unholy trinity that should weigh more heavily on the world’s conscience than it does. Of the 70 million children in peril, two in five have personally experienced violence or abuse. And although many of these children will likely never enter a classroom, school is precisely where they want – and need – to be.

“I don’t want to die,” one terrified girl begged from a war zone, “just study.” But, writing to a friend in the United Kingdom, she added defiantly: “I’m still alive, and my dreams are, too.” Her escape, her hope, and her heart all revolve around education.

The total number of children ensnared in emergencies – a figure that has grown by five million in just a few short years, and today outnumbers the population of France – will only worsen in 2018 if we fail to act decisively.

Global humanitarian response plans for the coming year, coordinated under the leadership of Mark Lowcock and the United Nations Office for the Coordination of Humanitarian Affairs (OCHA), will now place greater emphasis on displaced children’s educational needs, with particular support for girls at risk of being forced into marriage. But, despite the courageous efforts of aid agencies, conditions may still deteriorate before they improve. In Bangladesh, for example, more than 300,000 child refugees have been forced out of their homes as a consequence of sectarian violence in neighboring Myanmar. And while most refugees there have received food assistance, health care, and emergency shelter, only one in ten – some 30,000 children – are currently attending school, because only 5% of the humanitarian aid needed to educate Myanmar’s refugee children has been met.

While it is a remarkable achievement that one million Syrian children are now enrolled in formal or non-formal education programs in the region – including many in schools running on double shifts – one million more refugee children from that conflict are still awaiting their opportunity. Another 1.7 million children are out of school within Syria itself.

There can be no excuses for our failure to provide an education to children in the 19 global crisis zones that have suffered emergencies for five years or more, especially in the Democratic Republic of the Congo (DRC), Sudan, and Somalia – where crises have persisted for over 20 years. In the DRC, for example, even after all this time we reach only 8% of the 760,000 children. Only $230 per year per person is available for basic needs such as water, food, and shelter, and less than $10 per child goes toward education.

This year must be education’s moment – a window of opportunity opened by a new consensus that education is critical to achieving the UN Sustainable Development Goals, including reducing maternal and infant mortality rates, spurring job creation, improving quality of life, and opening our minds to issues of gender equality. But, most important, this is education’s moment because the world’s young people are demanding it.

When a girl holds a book up to an insurgent’s gun in Pakistan, when teenage mothers exiled from South Sudan in neighboring Uganda make education for their children their top priority, and when lights seen from space might include clusters of children huddled by candlelight trying to read and study, we know that education’s moment has come. Education provides hope – hope that a child can plan and prepare for a future defined by opportunity, not by child labor, marriage, or a life on the streets.

Gordon Brown, former Prime Minister and Chancellor of the Exchequer of the United Kingdom, is United Nations Special Envoy for Global Education and Chair of the International Commission on Financing Global Education Opportunity. He chairs the Advisory Board of the Catalyst Foundation.

By Gordon Brown

The Regional Repercussions of Honduras’s Botched Election

MEXICO CITY – In Honduras, stolen elections, followed by accusations of fraud, street demonstrations, and military repression, are business as usual. So it wasn’t exactly shocking when the presidential election in late November, marred by numerous irregularities in the vote count, led to all three. But the consequences are likely to reverberate throughout Latin America.

Decades of foreign intervention in Honduras have caused the country’s current predicament. From 1903 until 1925, Honduras faced continuing incursions by United States troops. In the 1980s, during the violent US-backed effort to bring about regime change in neighboring Nicaragua, Honduras was turned into what some in the military jokingly referred to as “the world’s only land-based aircraft carrier.” Today, it functions as an important transit point for drugs shipped from South America to the US.

But, in recent years, there have been efforts by foreign powers to play a more constructive role. In particular, America’s previous president, Barack Obama, committed the US to putting aside decades of mutual recrimination with its Latin American neighbors, and facilitated the development of an Inter-American system of collective defense of democracy and human rights.

The crown jewel of this effort was the normalization of relations with Cuba in 2016. With that, there seemed to be no reason why all countries in the hemisphere should not agree to use the tools created since 1948 to defend democracy and human rights in the region, regardless of short-term geopolitical considerations.

The main regional legal tools are the 1948 Bogotá Pact, which created the Organization of American States (OAS); the 1969 Pact of San José or American Convention on Human Rights, which gave rise to the Inter-American Commission on Human Rights and the Inter-American Court of Human Rights; and the 2001 Inter-American Democratic Charter. There is also the relatively long-standing OAS practice of sending Election Observer Missions, usually led by former presidents or foreign ministers, to observe voting in various countries.

While not every country is a party to all of these instruments, they have, collectively over time, been useful, if imperfect, instruments for upholding their respective causes. Yet the current situation in Honduras amounts to a second critical test of the system they comprise – the first being the semi-coup that deposed then-President Manuel Zelaya in 2009. What happens now can either legitimize the mechanisms that have been created, or weaken them severely.

The election in November was monitored by an OAS mission, as well as by one from the European Union. When, on the day following the vote, with ballots from just 57% of polling sites recorded and the opposition candidate, Salvador Nasralla, leading by more than 5%, counting suddenly ceased, both missions, as well as the opposition, demanded a partial or total recount. But they haven’t shown much resolve since.

For the two weeks following the vote, the Honduran electoral authorities insisted that the incumbent, Juan Orlando Hernández, won by 1.5%, owing to a (statistically improbable) surge of votes for him in rural areas. As if to appease complaints, the authorities then carried out a partial recount of less than one-third of the ballots cast, altering the final result, but not sufficiently to overturn Hernández’ victory. On December 15, they made Hernández’s victory official.

The EU mission decried the Hernández government’s electoral shenanigans, but also stated that the recounts and comparisons of tally sheets with computerized data showed no significant change in the results. It neither endorsed nor rejected the official outcome.

Conversely, the OAS mission decided that it could not conclude which of the two leading candidates won. But Hernández rejected OAS Secretary-General Luis Almagro’s proposal of a new election, stating that Hondurans would have to wait four years for another vote. Other Latin American countries – including Costa Rica, Guatemala, and Mexico – did not push back, and quickly recognized Hernández’s victory, as did the US.

Meanwhile, Nasralla, continuing to insist that he won, has refused to concede. And street protests – and the police and military response to them – have continued to rock the capital and other important cities.

There are no real winners amid this confusion and confrontation, though of course some are doing better than others. Hernández achieved his goal of becoming Honduras’ first president in decades to be re-elected, though he will find that his term is permanently tarnished by the OAS mission’s report on vote tampering.

Moreover, the US is surely pleased that the Honduran president is close to President Donald Trump’s chief of staff, John Kelly, and a stalwart supporter of Kelly’s drug war in Central America. Nasralla, by contrast, is closely aligned with Bolivia, Cuba, El Salvador, Nicaragua, and Venezuela (the so-called ALBA countries).

But perhaps the biggest winner is Venezuela’s radical populist government, which can now spend the next four years questioning Hernández’ election and supporting his adversaries. It benefits further from the fact that Almagro, who has played a notable role in promoting the defense of democracy and human rights in Venezuela, has now been discredited, undermining the entire OAS election monitoring process. With the legitimacy of next year’s elections in Venezuela likely to be questioned, that is not a minor advantage for President Nicolás Maduro.

Once again, a serious breach of representative democracy has occurred in Latin America, despite all the tools that have been created in recent years. An unfair and scarcely free election was probably stolen, or at best, tainted to the point that the result cannot be considered reliable. Honduras may be a small and poor country, but the effects of this failure are likely to be far-reaching.

Jorge G. Castañeda, a former foreign minister of Mexico (2000-2003), is Professor of Politics and Latin American and Caribbean Studies at New York University.

By Jorge G. Castañeda

Monetary-Policy Normalization in Europe in 2018

BUENOS AIRES – When the European Central Bank’s Governing Council met on December 14, there was little to surprise financial markets, because no policy changes could be gleaned from public remarks. The previous meeting, in late October, had already set the stage for the normalization of monetary policy, with the announcement that the ECB would halve its monthly asset purchases, from €60 billion ($71 billion) to €30 billion, beginning in January 2018.

The motivation behind normalization does not appear to be the eurozone’s inflation performance, which continues to undershoot the target of roughly 2% by an uncomfortable margin. Inflation expectations, while inching up recently, also appear anchored well below target, despite recent soaring confidence readings. And the ECB’s own forecast suggests that it does not anticipate that price growth will breach 2% anytime soon.

What about the output gap? In step with the US Federal Reserve, the ECB nudged its growth forecasts higher. In that setting, R-star (the natural rate of interest) may be perceived as drifting up, in line with output moving closer to potential across a broad swath of eurozone economies.

Still, OECD estimates of the 2017 (and 2018) output gap for most of the eurozone countries (Germany and Ireland are notable exceptions) suggest that there is slack, and in numerous cases considerable slack. While German unemployment, now below 4%, is at its lowest level since reunification, EU unemployment still hovers around 9%. Given this, it appears premature to view fears of eurozone overheating as the main driver of monetary-policy normalization.

Perhaps there are other motives for normalization that the ECB doesn’t discuss publicly. Financial stability comes to mind. After all, the Fed does not forecast recessions, and the International Monetary Fund usually does not issue public pronouncements on a country’s odds of default. The silence reflects an understandable desire to avoid fueling a self-fulfilling process.

The risks to financial stability from keeping interest rates too low for too long are neither new nor unique to the eurozone. At the risk of oversimplifying, the gist of these arguments is that ample and inexpensive credit inflates asset-price bubbles, encourages excessive risk taking, drives up leverage, and may even delay necessary economic reforms.

There is some basis for concern in the eurozone on all these fronts. While debt-service ratios are mostly low, that could change when interest rates rise. Moreover, property prices are increasing rapidly in some locales, and a few broad share indexes posted double-digit percentage gains over the past year.

It is hardly a coincidence, however, that financial stability risks have recently been emphasized by Germany’s Bundesbank, the most hawkish of the eurozone’s national central banks. In this context, it is important to ensure that policy normalization in the eurozone does not become Germanization, which was the status quo the last time eurozone conditions were “normal,” before the financial crisis.

The Taylor rule (proposed by the Stanford University economist John Taylor in the early 1990s) is often used to describe central banks’ interest-rate policies. Specifically, the rule shows how the policy interest rate responds to changes in inflation, the gap between potential and actual output, and other economic conditions. As part of a larger focus on exchange-rate and monetary policies worldwide, my recent study with Ethan Ilzetzky and Kenneth Rogoff presents estimates of individual Taylor rules for the eurozone countries from 1992 to 2015.

The main lesson from that exercise is that, from the early days of the euro (1999) until approximately 2010 (when the crisis in Greece and the eurozone periphery erupted in force), ECB interest-rate policy was an extension of the pre-euro 1992-1998 Deutschemark (DM) policies of the Bundesbank (see figure). In effect, the actual Bundesbank/ECB rate moved closely in tandem with the interest rate predicted by a Taylor rule applied to Germany.

By contrast, for all the other eurozone members, there were large deviations between the ECB policy interest rate and the interest rates consistent with the Taylor rule. In the years before the crisis, interest rates were “too low” for eurozone countries, like Spain, that were booming. It is only after the 2010 episode that the ECB policy rate fell substantially and persistently below the interest rate consistent with a Taylor rule for Germany.

While normalization and the related downsizing of the ECB’s bond purchase program are part and parcel of the long-awaited recovery cycle in Europe, the modalities, magnitude, and speed of execution remain critical, especially when the post-crisis era is placed in historical context. With the exception of Germany, the European recovery from the 2008 global financial crisis has been among the slowest in more than a century’s worth of cases.

The ECB would do well to proceed with caution on two fronts in 2018. It must cope with mounting pressure from Germany for a more aggressive approach to normalization, and it must avoid becoming overconfident about the durability and breadth of the unfolding recovery.

Carmen M. Reinhart is Professor of the International Financial System at Harvard University's Kennedy School of Government.

By Carmen M. Reinhart

Preventing the Next African Famine

NEW YORK – After falling for more than a decade, the number of hungry people in the world is rising once again. This year was marked by the worst global food crisis since World War II, with South Sudan, Yemen, Somalia, and Nigeria either experiencing famine or teetering on the brink. More than 20 million people in those four countries alone remain severely food-insecure, and the United Nations estimates that $1.8 billion in immediate humanitarian aid is needed.

Political instability and conflict have contributed heavily to this food insecurity, but insufficient food production has also likely heightened tensions and exacerbated hunger. In Sub-Saharan Africa, where three of the four countries on the verge of famine are located, crop yields have long lagged behind the rest of the world, owing to poor farm inputs, such as low-quality seeds and fertilizer.

Investing in agriculture is one of the most effective ways to end hunger and improve political stability. There are 50 million smallholder farmers in Sub-Saharan Africa alone, and they support many millions more. Countries on the continent that have invested heavily in agricultural development and smallholder farmers have been successful at avoiding famine.

Consider the example of Ethiopia, which experienced one of the worst famines in history in the mid-1980s. An estimated one million people died during that crisis, which was caused by a combination of conflict and drought, and it took many years for the country to recover.

Today, Ethiopia is peaceful, but drought conditions have returned. In 2016, the country suffered its driest growing season in 50 years. And yet Ethiopia did not experience famine last year. There were hungry people, to be sure, but disaster was avoided. Oxfam attributes this to the fact that the government was better prepared to deliver food and water to millions. The country has also vastly improved its farming infrastructure, and new irrigation and drinking water systems provide rural areas with easy access to clean, safe water sources.

For more than a decade, the Ethiopian government has made agricultural development a top priority. In 2010, it created the Ethiopian Agricultural Transformation Agency, a public entity dedicated to boosting the productivity of the agriculture sector. As the noted British author and Africa researcher Alex de Waal has noted, “Politics creates famine, and politics can stop it.” Ethiopia proves his point. While domestic and international contributions still flow during relief efforts, it is Ethiopia’s long-term investments that have increased the country’s resilience.

An increase in strategic agricultural investments, from African donors or international sources, could help other countries in the region reap similar rewards. Climate change is making such investments even more urgent, as extreme weather events – both flooding and droughts – are becoming more common throughout Sub-Saharan Africa.

Even without government support, however, farmers can take modest and cost-effective steps immediately to mitigate climate shocks. By using smart farming techniques such as drought-resistant seeds, intercropping, composting, and crop diversification, farmers can blunt the effects of extreme weather at very low costs.

Trees are one of the most effective tools we have for fighting climate change, and they also make economic sense for small farmers. A farmer who invests $2 in seedlings can make a profit of more than $80 in ten years, when some of the full-grown trees can be cut and sold. Trees also benefit the environment while they are growing – by absorbing carbon, improving soil health, and preventing erosion.

Farmers who have an asset base of trees, livestock, or cash generated by selling crop surpluses are better able to withstand weather shocks. And, as our organization is currently demonstrating in six African countries, farmers can build their asset bases with training and financial support. That is why we believe African governments and bilateral donors should deepen their investments in programs that provide farmers with the skills to produce long-term crops, especially trees, sustainably. Inexpensive practices – such as planting crops in rows, weeding correctly, and applying fertilizer in micro-doses – are also proven methods to increase crop production dramatically.

With the effects of climate change expected to intensify in coming years, Africa’s smallholder farmers must prepare now for a more turbulent future. The United States has historically been the world’s largest donor to global food security programs, but the future of this leadership role under President Donald Trump is uncertain. While global food security initiatives enjoy bipartisan support in the US Congress, the Trump administration’s proposed foreign aid budget recommends deep funding cuts to these programs.

As US support waivers, African and European governments, foundations, institutional donors, and practitioners must be ready to step in to help African farmers build long-term resiliency. Investing in agriculture is the most efficient way to improve food security in Africa, while ensuring that people on the front lines of the fight against climate change can maintain thriving economies and sustainable, healthy environments.

Only through careful planning, and by following the lead of countries like Ethiopia, can Sub-Saharan Africa address the underlying causes of hunger. Although food security is a complex problem to solve, preventing future famines doesn’t have to be.

Stephanie Hanson is Senior Vice President of Policy and Partnerships at One Acre Fund. Whitney McFerron is a writer and editor at One Acre Fund.

By Stephanie Hanson and Whitney McFerron

Fake Brexit or No Brexit

LONDON – Since last year’s Brexit referendum, the United Kingdom has been likened to a suicide who jumps off a 100-storey building and, as he falls past the 50th floor, shouts “so far, so good.” This comparison is unfair to suicides. The real economic and political message today is “so far, so bad.”

The “deal” to begin negotiations for a post-Brexit relationship, announced at the EU summit on December 15, followed Prime Minister Theresa May’s capitulation on all of the demands made by European leaders: €50 billion ($59 billion) of budget contributions, European court jurisdiction over the rights of EU citizens in Britain, and a permanently open border with Ireland.

The last concession was a game changer. The open border in Ireland has forced May to abandon her promise to “take back control” from the EU and its regulatory framework, as confirmed in the summit communiqué: “In the absence of agreed solutions, the United Kingdom will maintain full alignment with those rules of the Internal Market and the Customs Union which, now or in the future, support North-South cooperation.”

The result of this crucial concession on Ireland is that both scenarios usually proposed for Britain’s relationship with the EU can now be dismissed. With no parliamentary majority to revoke the agreement, a “hard Brexit,” in which Britain breaks free of EU regulations and trades simply on the basis of World Trade Organization rules, is no longer possible. And a “soft Brexit,” which attempts to preserve the commercial benefits of EU membership without the political obligations, is equally impossible, because European leaders reject any such “cherry-picking” – and now have the whip hand over Britain.

If hard and soft Brexit are both excluded, what other options are there? The obvious one, apparent after May’s failed election gamble, is some form of associate EU membership, similar to Norway. Britain would retain many of its current commercial privileges, in exchange for complying with EU rules and regulations, including free movement of labor, contributing to the EU budget, and accepting the jurisdiction of EU law. While May foolishly rejected all three of these conditions early this year, the likely result of the Brexit negotiations will be to blur all her “red lines” out of existence.

While businesses, investors, and economists would welcome such a Norwegian-style “fake Brexit,” it would carry a huge political cost. Britain would have to adhere to EU laws, regulations, and legal judgments in which it would no longer have any say. Instead of a rule-maker, the United Kingdom would become a “rule-taker” – or, in the emotive language adopted recently by Brexit hardliners, Britain would be reduced from an imperial power to a “vassal state” or a “colony” of the EU.

This “rule-taker” status is what the UK has already requested for a two-year “transition period,” beginning in April 2019. May claims that this will be a “strictly time-limited” arrangement, while she negotiates a free-trade agreement with the EU. But the EU has repeatedly made clear that two years is too short a period to negotiate even a simple FTA, never mind the “imaginative, bespoke” deal that May is seeking.

In truth, there is almost no chance of Britain ever negotiating the “deep and special partnership” May has promised. It is simply inconceivable that European leaders would offer Britain’s service industries access to the EU single market without imposing the legal and budgetary conditions accepted by Norway and Switzerland.

What, then, will happen at the end of the transition period in April 2021? The only plausible answer is a further transition, if only to avoid an economically devastating rupture in trade regulations just before the UK general election due in 2022. And, assuming the transition is extended from 2021 to, say, 2023, aren’t further extensions likely, probably evolving into a quasi-permanent arrangement? Norway’s EU relationship via the European Economic Area, also designed as a brief transition, has now lasted 24 years.

This “Hotel California” scenario, in which “you can check out any time you like, but you can never leave,” would ultimately enrage both Brexiteers and Remainers. So what are the other options?

If a hard Brexit is economically unacceptable to British business and Parliament, a soft Brexit is politically unacceptable to EU leaders, and a fake Brexit is unacceptable to almost everyone, that leaves just one alternative: no Brexit.

It is still entirely possible to abandon Brexit by revoking Britain’s withdrawal notice under Article 50 of the Treaty on European Union. This decision would have to be made by Parliament before the treaty deadline of March 29, 2019, and it would probably have to be ratified by another referendum.

A necessary condition for this sequence of events would be the collapse of May’s government, perhaps caused by a Brexiteer revolt against the “vassal state” conditions imposed by the EU during the transition period. Under these circumstances, a general election would almost certainly produce a Labour-led coalition based on a promise to “think again” about Brexit. This was exactly the scenario suggested last month by one of May’s few remaining loyalists, Health Secretary Jeremy Hunt, who became the first senior Tory to admit publicly that Brexit might never happen if zealous Euroskeptics ever rebelled against May.

For the time being, the threat of a Labour government has been sufficient to intimidate Brexit hardliners. But the forced quiescence of the Euroskeptics makes it more certain that May will negotiate a “vassal state” transition that evolves into the Euroskeptics’ nightmare of an inescapable “Hotel California,” based on the Norway model.

As the Brexit hardliners grasp this logical conundrum, they could well decide to bring down May and risk a general election rather than collaborate in Britain’s demotion to “vassal statehood.” The suicide jumper is still falling, and, until he passes the first-floor window, we will not know whether he is attached to a bungee cord.

Anatole Kaletsky is Chief Economist and Co-Chairman of Gavekal Dragonomics and the author of Capitalism 4.0, The Birth of a New Economy.

By Anatole Kaletsky

The Meaty Side of Climate Change

BERLIN – Last year, three of the world’s largest meat companies – JBS, Cargill, and Tyson Foods – emitted more greenhouse gases than France, and nearly as much as some big oil companies. And yet, while energy giants like Exxon and Shell have drawn fire for their role in fueling climate change, the corporate meat and dairy industries have largely avoided scrutiny. If we are to avert environmental disaster, this double standard must change.

To bring attention to this issue, the Institute for Agriculture and Trade Policy, GRAIN, and Germany’s Heinrich Böll Foundation recently teamed up to study the “supersized climate footprint” of the global livestock trade. What we found was shocking. In 2016, the world’s 20 largest meat and dairy companies emitted more greenhouse gases than Germany. If these companies were a country, they would be the world’s seventh-largest emitter.

Obviously, mitigating climate change will require tackling emissions from the meat and dairy industries. The question is how.

Around the world, meat and dairy companies have become politically powerful entities. The recent corruption-related arrests of two JBS executives, the brothers Joesley and Wesley Batista, pulled back the curtain on corruption in the industry. JBS is the largest meat processor in the world, earning nearly $20 billion more in 2016 than its closest rival, Tyson Foods. But JBS achieved its position with assistance from the Brazilian Development Bank, and apparently, by bribing more than 1,800 politicians. It is no wonder, then, that greenhouse-gas emissions are low on the company’s list of priorities. In 2016, JBS, Tyson and Cargill emitted 484 million tons of climate-changing gases, 46 million tons more than BP, the British energy giant.

Meat and dairy industry insiders push hard for pro-production policies, often at the expense of environmental and public health. From seeking to block reductions in nitrous oxide and methane emissions, to circumventing obligations to reduce air, water, and soil pollution, they have managed to increase profits while dumping pollution costs on the public.

One consequence, among many, is that livestock production now accounts for nearly 15% of global greenhouse-gas emissions. That is a bigger share than the world’s entire transportation sector. Moreover, much of the growth in meat and dairy production in the coming decades is expected to come from the industrial model. If this growth conforms to the pace projected by the UN Food and Agriculture Organization, our ability to keep temperatures from rising to apocalyptic levels will be severely undermined.

At the United Nations Climate Change Conference (COP23) in Bonn, Germany, last month, several UN agencies were directed, for the first time ever, to cooperate on issues related to agriculture, including livestock management. This move is welcome for many reasons, but especially because it will begin to expose the conflicts of interest that are endemic in the global agribusiness trade.

To skirt climate responsibility, the meat and dairy industries have long argued that expanding production is necessary for food security. Corporate firms, they insist, can produce meat or milk more efficiently than a pastoralist in the Horn of Africa or a small-scale producer in India.

Unfortunately, current climate policies do not refute this narrative, and some even encourage increased production and intensification. Rather than setting targets for the reduction of total industry-related emissions, many current policies create incentives for firms to squeeze more milk from each dairy cow and bring beef cattle to slaughter faster. This necessitates equating animals to machinery that can be tweaked to produce more with less through technological fixes, and ignoring all of this model other negative effects.

California’s experience is instructive. Pursuing one of the world’s first efforts to regulate agricultural methane, the state government has set ambitious targets to reduce emissions in cattle processing. But California is currently addressing the issue by financing programs that support mega-dairies, rather than small, sustainable operators. Such “solutions” have only worsened the industry’s already-poor record on worker and animal welfare, and exacerbated adverse environmental and health-related effects.

Solutions do exist. For starters, governments could redirect public money from factory farming and large-scale agribusiness to smaller, ecologically focused family farms. Governments could also use procurement policies to help build markets for local products and encourage cleaner, more vibrant farm economies.

Many cities around the world are already basing their energy choices on a desire to tackle climate change. Similar criteria could shape municipalities’ food policies, too. For example, higher investment in farm-to-hospital and farm-to-school programs would ensure healthier diets for residents, strengthen local economies, and reduce the climate impact of the meat and dairy industries.

Dairy and meat giants have operated with climate impunity for far too long. If we are to halt global temperature spikes and avert an ecological crisis, consumers and governments must do more to create, support, and strengthen environmentally conscious producers. That would be good for our health – and for the health of our planet.

Shefali Sharma is Director of Agricultural Commodities and Globalization at the Institute for Agriculture and Trade Policy.

By Shefali Sharma

Whither the Multilateral Trading System?

BRUSSELS – Free trade seems to have few supporters these days. Though actual trade volumes are recovering from the post-crisis recession and drop in commodity prices, “globalization” has become increasingly contentious, as exemplified by the election of US President Donald Trump on the back of a promise to rip up international agreements and get tough on trade partners. What does this mean for the future of the rules-based trading system?

Some 60 years ago, when the current rules-based global trading system was conceived, the United States was the world’s sole economic “hyperpower,” possessing unquestioned dominance in the day’s most advanced manufacturing industries. With enough power to impose rules, and enough dominance to be able to count on accruing the largest share of the benefits, it could – and did – perform the role of “benevolent hegemon.”

As Japan and Europe recovered from World War II – with the latter getting an added boost from economic integration – America’s lead began to dwindle, and by the 1970s and 1980s, the US was sharing power over the world’s trade agenda with Europe. Nonetheless, because the US and Europe share so many common interests, they generally adhered to a cooperative approach.

It was not until imports began to overwhelm a growing number of industries in the US, fueling the emergence of large and persistent external deficits, that the country’s trade policy became more defensive, creating friction with many of its partners. Yet, even then, US leaders understood the value of the liberal multilateral trading system, and supported the establishment, in 1995, of the World Trade Organization as the successor to the General Agreement on Tariffs and Trade.

The WTO’s creation amounted to a major step forward, as it addressed not just tariffs, but also other trade barriers, including indirect barriers arising from domestic regulations. Given the complexity of assessing how domestic regulations might impede trade, especially compared to judging whether a tariff has been correctly applied, the WTO needed effective dispute-settlement mechanisms, with members agreeing to binding arbitration. The system worked, because its major members recognized the legitimacy of independent panels, even if they sometimes deliver politically inconvenient judgments.

Yet this recognition is now increasingly in doubt. Consider what type of economy would support a rules-based system. After WWII, the US supported such a system, because of its unassailable economic supremacy. An open rules-based system would also be highly appealing in a world comprising only small countries, none of which could hope to gain by relying on its relative economic power.

Things become more complicated when the global economy includes a small number of economies of similar size, larger than the small economies from the previous example, but not large enough to dominate the system alone. That is the scenario the Nobel laureate economist Paul Krugman considered in a 1989 paper on bilateralism, in which he reported that a world consisting of three major trading blocs constitutes the worst constellation for trade, as a lack of explicit cooperation among all three would lead to increasing trade barriers.

Unfortunately, this is exactly the situation in which the global economy finds itself today. There are three dominant economies or trading blocs – China, the European Union, and the US – with very similar trade volumes (exports plus imports) of around $4 trillion each. (Japan, which was a strong contender 25 years ago, now has a much smaller trade volume.) Together, the G3 economies account for 40% of world trade and 45% of global GDP.

With economic power distributed in this way, explicit cooperation by all three actors is crucial. Yet there are compelling reasons why they would be reticent to pursue such cooperation.

Even if Trump weren’t president, the current global trading system would present problems for the US, whose trade policy has long focused on manufactured goods. (Trade in raw materials has always been relatively free, and trade in agricultural goods has usually been considered special, and thus not subject to rules like the “most favored nation” principle, which applies to manufactures.)

Because the US is now self-sufficient in energy, it needs to export fewer manufactured goods than industrialized countries with no domestic energy resources. Annual US exports of manufactured goods thus now amount to only about $1 trillion annually – significantly less than both the EU and China, which export almost twice as much in manufactured goods, despite having somewhat smaller economies.

To be sure, Trump is unlikely to start an outright trade war, because any US tariff would harm the interests of the country’s largest companies, which have invested huge sums in production facilities abroad. Yet no individual firm will be willing to give up much of its political capital to defend the rules-based system, either, because it would have to bear the losses, while its competitors shared the gains. The same goes for the G3 trading blocs: if the EU expends political capital to stop the US from undermining WTO mechanisms, China (and the rest of world) will reap most of the gains.

That dynamic goes some way toward explaining why China’s leaders, despite having proclaimed their support for the multilateral rules-based trading system, haven’t taken concrete action to reinforce it. Their reticence is probably intensified by the assumption that, within the current generation, their country will dominate the global economy; at that point, they might no longer want to be bound by somebody else’s rules.

It does not help matters that the Communist Party of China has recently been empowered even further in all areas of the economy, with all major firms now having to accept a CPC representative on their board. It is difficult to see how a dominant economic power governed by a single party – especially one with such extensive control over the economy – would accept the primacy of international rules and procedures over domestic considerations.

The conclusion is clear. The world should prepare itself for the erosion of the rules-based trading system enshrined in the WTO.

Daniel Gros is Director of the Center for European Policy Studies.

By Daniel Gros

Making the Most of the Brexit Deal

PARIS – On December 8, the United Kingdom and the European Union’s 27 members settled on some key aspects of the Brexit divorce agreement, opening the way for the decision, on December 15, to open a new chapter in negotiations, focused on addressing the future EU-UK relationship and transitional arrangements. This is good news, not least because it averts the worst-case scenario: a hard Brexit. But what lies ahead is much more challenging.

It seemed for some time that Europe would sleepwalk into hard Brexit. With the UK’s ruling Conservative Party deeply divided, and the EU seemingly unwilling to act strategically, the likelihood of a no-deal cliff-edge scenario appeared high.

Yet, in the end, the UK made critical concessions that allowed the negotiations to move forward. It agreed to pay much more to its EU partners than it had initially announced. And it committed to avoid the establishment of a hard border between Northern Ireland (part of the UK) and the Republic of Ireland (part of the EU), even as Northern Ireland retains full access to the British market.

The deal is a bitter pill to swallow for those who campaigned for Brexit in the name of saving money for the UK’s National Health Service. They will find it hard to tell voters that settling existing commitments to the EU will cost each British adult €1,000 ($1,189), if not more. And the latter-day Leninists who regarded Brexit as a way to complete the policy agenda initiated by Prime Minister Margaret Thatcher will find it hard to reconcile their vision of a deregulated Britain with the continued alignment of Northern Ireland’s regulatory regime with that of the EU.

But the fact is that a hard Brexit would have cost both the UK and the EU far more, in terms of jobs and prosperity. Even the threat of such an outcome was starting to cause damage, as private companies put investment on hold. The political consequences of a hard Brexit would have been dire as well. Both the UK and the EU would have lost substantial global influence at a moment when an erratic US administration is seeking to tear down the existing international order and an assertive Chinese leadership is beginning to use that effort to its own advantage.

Had the UK not acted to avoid such a scenario it would have lost the most, especially if it had ended up relying on a crumbling multilateral trade system to ensure access to foreign markets. In any case, because geography matters, the EU will remain Britain’s main market. And, because size matters, the UK will continue to depend on EU regulations, especially in services.

But averting a hard Brexit is just the first step. The question now is what sort of future relationship the two sides can agree on. And the answer is far from clear.

On the British side, the absence of a coherent vision for the future UK-EU relationship is astonishing. Prime Minister Theresa May’s speech in Florence in September remains the closest approximation on offer, but it left many important questions without a clear answer. And, as May’s legislative defeat in the House of Commons on December 13 underscored, the British government remains too divided to agree on a common Brexit agenda.

There is not much vision on the EU side, either. With the recent deal, Michel Barnier, the bloc’s chief negotiator, scored a tactical victory. But a template for future partnership is still nowhere to be found. The guidelines for Brexit negotiations issued last April by the EU’s heads of state and government certainly did not provide one. Instead, they established red lines, emphasizing the “indivisibility” of the “four freedoms” – free movement of goods, services, capital, and labor – that underpin the European single market. The December 15 declaration does not go much further.

For now, the EU’s negotiating stance continues to be shaped largely by the fear that too favorable an agreement would create incentives for other countries to follow the UK’s lead. Beyond that defensive attitude, lack of policy consensus has resulted in a preference for the status quo.

Policy wonks focus on weighing a “Canada option” (a free-trade agreement for goods) against a “Norway option” (a sort of junior membership in the single market). But both are unsuited to the UK-EU partnership. The Canada option would not address any of the fundamental issues concerning trade in services – a critical omission, given that the UK is a major supplier, and their provision requires a complex regulatory framework. And the Norway option would simply assume away the problem by requiring Britain to adopt passively any economic legislation adopted by the EU.

In a 2016 paper, my colleagues and I argued that the EU should regard Brexit as an opportunity to define a new model for partnership with countries that want strong economic and security links, without political integration. We further argued that, at a time when enlargement momentum has been depleted, the EU should work to diversify its relationships with neighbors. We proposed building a “continental partnership” involving deep economic integration based on a common regulatory framework, with the EU, the UK, and possibly others accepting the free movement of goods, services, and capital, but not of labor. We also argued in favor of a permanent process of policy consultation that would, as a counterpart to the UK’s submission to EU economic rules, give the British a voice – but no vote – in the creation of European economic legislation.

In official EU circles, the paper was received coldly, to say the least, with critics deriding the breach of the four freedoms. But the fact is that, while an integrated market for goods and services requires a degree of labor mobility, it does not imply that all people must have the right to cross borders and look for a job in the country of their choice. To pretend that it does is to confuse a citizen’s right (essential, to be sure, in a political and social community like the EU) with an economic necessity. This is bad economics and dubious politics.

Our critics also resisted envisioning a longer-term arrangement before the details of the divorce were settled. But this chapter is now being closed, meaning that it is time for the EU to think outside the box, and make an ambitious offer to Britain.

Any sensible agreement between the EU and the UK is bound to result in the latter losing much of the influence it currently enjoys in European affairs – an outcome that will surely diminish the appeal of following its lead. But even if a current EU member does decide it would be better off outside the EU’s “inner circle,” it is not the end of the world. It certainly isn’t a reason to cling to the status quo.

Jean Pisani-Ferry, a professor at the Hertie School of Governance (Berlin) and Sciences Po (Paris), holds the Tommaso Padoa-Schioppa chair at the European University Institute.


Africa’s Must-Do Decade

VIENNA – Since 2000, Africa has recorded impressive rates of economic growth, owing largely to development assistance and a prolonged commodity boom. While the continent shows great diversity in the socioeconomic trajectories, growth rates have generally masked an underlying lack of structural transformation.

Many African countries have yet to undergo the kind of transformation that is necessary for socially inclusive and environmentally sustainable development over the long term: namely, industrialization. Wherever industrialization has occurred, it has reliably improved economic diversification and helped to nurture, strengthen, and uphold the conditions for competitive growth and development.

In recent decades, some developing countries – mainly in Asia – have managed to industrialize. But, despite repeated attempts, African countries have not. In 2014, the Asia and Pacific region’s share of value added in global manufacturing was 44.6%, whereas Africa’s was just 1.6%. With South Africa as its only industrialized country, Sub-Saharan Africa is the least industrialized region in the world.

For African countries to achieve sustainable development, they will have to increase substantially the share of industry – especially manufacturing – in their national investment, output, and trade. And, to their credit, most African countries already recognize that such a transformation is necessary to address a wide range of interconnected challenges that they are now confronting.

One such challenge is population growth. More than half of the continent’s 1.2 billion people are under the age of 19, and almost one in five are between the ages of 15 and 24. Each year, 12 million new workers join the labor force, and they will need the tools and skills to ensure their future livelihoods. Industrialization is the key to helping Africa’s fast-growing population realize a demographic dividend.

A related challenge is migration. Many of Africa’s most ambitious and entrepreneurially minded young people are joining others in migrating north. But no country, especially in Africa, can afford to lose so much talent and potential. Industrialization alone cannot resolve the migration crisis, but it can address one root cause, by creating jobs in the countries of origin.

A third challenge is climate change, which weighs heavily on countries where agriculture is still the primary sector for employment. To confront the threat, Africa will need to develop and adopt green technologies, while channeling more investment into resource efficiency and clean energy. With the right investments, African countries can reduce the cost of delivering power to rural areas, and contribute to global efforts to reduce emissions and mitigate the effects of climate change.

In short, Africa must industrialize, and it must do so in a socially inclusive and environmentally sustainable manner. Given that most previous efforts at sustainable development in Africa have failed, there is a clear need for a new approach: a broad-based, country-owned process that taps financial and non-financial resources, promotes regional integration, and fosters cooperation among Africa’s development partners.

As it happens, the United Nations General Assembly has declared 2016-2025 to be the Third Industrial Development Decade for Africa. During IDDA III, the United Nations Industrial Development Organization, which I lead, will spearhead the new approach to sustainable development sketched above. UNIDO has put its full support behind partnerships for mobilizing resources, and is offering a tested model for African countries to follow: the Programme for Country Partnership (PCP).

UNIDO’s PCP provides countries with technical assistance, policy advice, and investments to help them design and implement industrialization strategies. The program was launched in 2014, and is already being successfully implemented in two African countries – Ethiopia and Senegal – and in Peru.

The PCP provides a multi-stakeholder partnership model that can be adapted to each country’s national development agenda. It is designed to work in synergy with governments and their partners’ ongoing development efforts, while funneling additional funds and investments toward sectors that have high growth potential and are important to a particular government’s industrial-development agenda. Priority sectors are typically chosen for their job-creation, investment, and export potential, and for their access to necessary raw materials.

The PCP approach is designed to maximize the impact of all partner programs and projects that are relevant to industrial development. To that end, strategic partnerships with financial institutions and the business sector are particularly important. With these in place, African countries can marshal additional resources for infrastructure, innovation, expertise, and new technologies.

UNIDO’s goal is to make the PCP model the mainstream approach for all African countries. We stand ready to support Africa on its path to inclusive and sustainable industrial development – during IDDA III and beyond.

Li Yong is Director General of the United Nations Industrial Development Organization.

By Li Yong

Coming Clean in 2018

LONDON – It has been a bumper year for making the invisible visible. The last 12 months have overflowed with leaks, allegations, and other disclosures, not just of misconduct by individuals, business leaders, and politicians, but also of proactive schemes to prevent that misconduct from ever coming to light.

Last month, it came out that a 20-year-old hacker breached Uber’s system in 2016 and accessed the information of about 57 million people, including some 600,000 of its drivers in the United States. Rather than admit to the security flaw, Uber quietly paid the culprit $100,000 to destroy the data, in the hope that the victims – and, perhaps more important to Uber, the company’s investors – would never find out.

The Equifax data breach – in which hackers gained access to sensitive personal information, from birth dates to Social Security numbers, for about 143 million US customers – was not covered up to quite the same degree. But there was still a six-week period between discovery of the breach and disclosure to the public, during which three executives sold a small share of their stock, though they insist they had no knowledge of the breach at the time.

A security breach is frustrating, even infuriating, for customers and investors. But willful denial of such a breach decimates trust. If a company discloses a breach, at least customers know they can expect to be told what is happening with their information (and can keep watch for fraudulent activity on their accounts), and investors can assess business risk accurately.

If the truth comes out much later – as in the case of Uber, in particular – a story about a technical problem quickly becomes a story about corporate integrity. Consumers’ fears about sharing personal information with companies – difficult to avoid in modern life – deepen, and business becomes an object of heightened skepticism.

But businesses have not just been covering up mistakes; they have also been hiding major crimes by senior figures. Nowhere is this more apparent than in the long-term patterns of sexual harassment and cover-ups that have been exposed in recent months.

At Fox News, leading personalities – from commentator Bill O’Reilly to the company’s chair, Roger Ailes – were long protected by the network’s parent company, 21st Century Fox, in the face of allegations of sexual harassment. Not only did 21st Century Fox help to keep quiet a $32 million settlement reached in January between O’Reilly and a frequent guest on his show (at least the fifth such settlement over O’Reilly’s behavior); the company offered its star a highly lucrative new contract soon after.

O’Reilly was eventually pushed out, but only after the truth about the allegations and settlements were revealed to the public. The company followed essentially the same script with regard to Ailes during his 20-year tenure.

A similar machine protected the Hollywood heavyweight Harvey Weinstein during his decades of using his position of power to harass and assault women. As The New York Times recently documented, Weinstein received help from all sides. His brother and partner, Robert Weinstein, participated in the payoffs. His business associates were incentivized to look the other way. Reporters were tasked with discrediting accusers. Even the victims’ own agents and managers were pressured or paid to advise their clients to stay quiet.

The good news is that when more powerful figures are held to account for their abusive behavior, more victims may gain the confidence to come forward. As power dynamics shift, victims overcome the belief that they must suffer in silence, and come to trust that enough people will actually listen to them.

In this sense, the acceleration in revelations of the last year is a culmination of a longer-term trend, in which larger-than-life power players and seemingly unshakable institutions have been brought down by their own misdeeds. In the aftermath of the global financial crisis, financial-sector executives may not have been held fully to account for their actions, but the outcry surely contributed to the “shareholder spring” that began in 2012, with investors rejecting executive pay packages and paying more attention to corporate governance issues.

In sport, numerous FIFA officials, including the international soccer organization’s president Sepp Blatter, were brought down, after decades of match fixing, bribery, and other corrupt practices. And Russia has been banned from the coming Winter Olympic Games for using a complex system to circumvent the drug-testing regime at the 2014 Olympics in Sochi.

One area where the other shoe has yet to drop is in the big cover-up in US politics: the connection between members of Donald Trump’s presidential campaign, including his son Donald Trump, Jr., and official Russian circles. The facts, which are gradually emerging, are damning enough. But the ham-fisted attempts to hide the truth are making the situation much worse for the Trump administration, and for US politics more broadly, not to mention the country’s international standing.

If nothing else, recent revelations should drive home the maxim that the cover-up makes the original mistake ten times worse. President Richard Nixon and many of his aides learned that lesson during the Watergate scandal. In 2018, the Trump administration – and companies like Uber and 21st Century Fox – will ignore it at their peril.

Lucy P. Marcus is CEO of Marcus Venture Consulting.

By Lucy P. Marcus

We use cookies to improve our website. By continuing to use this website, you are giving consent to cookies being used. More details…