Tag Archives economy

Financial inclusion of urban street vendors in Kigali by Diane Irankunda and Peter van Bergeijk

Financial inclusion of urban street vendors in Kigali by Diane Irankunda and Peter van Bergeijk

  During the summer of 2017 we studied financial inclusion of street vendors in the Nyarugenge District (Kigali, Rwanda), a group of underprivileged that very often cannot be reached by traditional ...

COVID-19 | Is deglobalization helping or hindering the global economy during the coronavirus crisis? by Peter A.G. van Bergeijk

COVID-19 | Is deglobalization helping or hindering the global economy during the coronavirus crisis? by Peter A.G. van Bergeijk

We are only starting to see the economic impact of the COVID-19, but it is likely to have far-reaching effects and will result in unprecedented economic transformation. We are currently ...

The ‘Economic Trauma’ that Zimbabwe faces by Susan Wyatt

Zimbabwe, once considered the breadbasket of Africa, now lies in an economic flux. A new term, ‘Economic Trauma’, is proposed in this blog to draw attention to the societal impacts of historical, perpetuating, and contextual lines of trauma that influence the current situation.  


We use language like economic hardship, economic turmoil, or economic crises, but seldom if at all do we talk about Economic Trauma. We think of trauma in terms of confronting direct, physical acts and their consequences. We recognise emotional and mental trauma as being damaging to a person’s psyche. However, bubbling away in Zimbabwe for some time is something I’ve recently experienced a first-hand assault in – Economic Trauma.

Quite literally one morning we woke up and the money in our bank account was valued at less than a quarter of its worth compared to the day before. Wait … what? How does that happen? Well, it’s complicated and depends on many variables. Most of these the average citizen doesn’t understand, not because they’re uneducated, but because it’s complex and layered between propaganda, historical and cultural narratives, speculation, ineffective processes, and fear. A lot of fear. So aren’t we just talking about bad economics here? The short answer is no. And here’s why.

Back in the 2000s the Zimbabwean economy went through an almost total collapse. There have been attempts at reform since, and in recent years improvements have been made. But in September and October this year (2018), there was episodic hyperinflation again due to various reasons including short-sighted government decisions, unwavering national debt, a fluctuating import/export market and, again, fear. Even though the economy was still better than it had been in recent years, Zimbabwean citizens had a severe reaction to the situation. There was panic buying, queues at fuel stations, and general despair across the nation. The people were experiencing Economic Trauma … but what is this, and how does it affect the economy?

Trauma is a circumstance that brings about a feeling that your safety has been violated and your trust broken. It causes anxiety, shame, intense reactions when triggered, ambivalence about hope for the future, and a sense of vulnerability and lack of control. These feelings or outcomes are currently exhibited in most citizens in Zimbabwe relating to the economy and decision made about it.  The hysterical stocking up of basic commodities. The dread at the news of daily rates and inflation. The deep anticipation and apprehension of what the next day brings—will there be relief, or more relentless, disappointing news?

If this extent of hyperinflation hadn’t been seen for a few years, why are the people across the country experiencing such extreme reactions? Well, they’re reacting based on how they felt when facing the dire economics of 2008 or the banking crisis of 2015.

It is collective trauma, with endless parallels to other recognised traumas. We see a societal level symptomatology akin to Post-Traumatic Stress Disorder. A trauma that makes you personally invisible in the sea of economic trauma around you. It makes your strife and hardship inconsequential and, for the most part, ineffective. It de-identifies you in your own personal struggle because everyone is going through it, too. The ripple effects of economic trauma into one’s relationships, business interactions, community, and eventually one’s society are palpable. Yet we don’t see a human rights declaration that places value or weight on safeguarding individuals from the impacts of economic trauma (even though it’s manmade and therefore could and should be controllable.) Instead, we see headlines blaming the ‘economic migrant’ for searching for a better life. And, let’s be honest, wouldn’t you? It’s a much more passive and discrete way of stripping away a person’s dignity and self-determination. It allows for blame to be shifted and diluted away from the epicentre of where the trauma stems from and how it is perpetuated.

The Zimbabwe situation, like many other old colonies and young countries, is in its entirety a complex one. By no means can it be unpacked and understood in one blog post. But in an effort to understand what we see happening in front of us, and to unashamedly open a dialogue to facilitate healing within our societies, I offer up three simplified points as navigational milestones relating to this current economic trauma. Although written as separate points, they require interrelated projects:

  1. Historical lines of Economic Trauma:

Colonisation, tribal conflicts, historical disempowerment, and intergenerational trauma are all significant contributors to our current situation. There is an incredible need for different avenues of reconciliation and healing, inclusive of pathways into economic opportunities through structural reforms to rectify the loss experienced by the previous generations.

  1. Perpetuating lines of Economic Trauma:

Aid, investments, development funds, and international monetary systems are structured to advantage the western, corporate business model, or are used for political gain. They are in fact harming and taking advantage of our economy. What we need are mutually beneficial profit-sharing agreements, business and environmental accountability, and safeguarded local investment and development, inclusive of pan-African business, and social support structures to facilitate resilience.

  1. Contextual lines of Economic Trauma:

Understanding the factors that have and continue to contribute to our turbulent situation is critical. But at some stage we need to take control of our own healing. We can no longer blame everyone else for all our current issues. Current-day corruption, lack of accountability or transparency, and unmet basic human needs are prevalent. We cannot heal as a nation until we are all healed.

It’ll never be a quick and easy recovery, but it’s what is needed in Zimbabwe. Without it, our economy continues to suffer, and in turn, so do we. We cannot do one type of healing or recovery without the other. We cannot expect people to participate in reconciliation programs, anti-corruption programs and development programs when they are struggling economically. And we cannot expect the country to make a sustained economic recovery with unhealed trauma’s lurking. They are the two sides of the same coin that is Economic Trauma.


susanAbout the author:

Susan Wyatt is Zimbabwean born and raised. She is a Mental Health Occupational Therapist, with a Master’s degree in Anthropology and Development, specialising in Conflict and Development. Her expertise is in transcultural mental health, reconciliation, peace building and development practices. Susan is the director of Tana Consulting, which currently operates out of Harare, Zimbabwe.

 

Economic diplomacy: bilateral relations in a context of geopolitical change by Peter A.G. Bergeijk and Selwyn J.V. Moons

Economic diplomacy: bilateral relations in a context of geopolitical change by Peter A.G. Bergeijk and Selwyn J.V. Moons

Economic diplomacy, although perceived as marginally important by neoclassical economists, is a highly relevant topic first and foremost because it works in practice, but also because it provides an essential ...

How oil rent contributes to Venezuela’s economic crisis by Blas Regnault

How oil rent contributes to Venezuela’s economic crisis by Blas Regnault

The ‘Paradox of Plenty’, the ‘Dutch Disease’ or the ‘Resource Curse’ are often cited as reasons for Venezuela’s economic crisis. However, economic processes in such oil-exporting economies deserve deeper theoretical ...

Deglobalisation Series | Financial deglobalisation: a North-South divide? by Haroldo Montagu

The Financial Crisis of 2008/09 led to a structural break in financial globalisation, setting cross-border capital flows back to the average of the 1990s. Do differences between cross-border financial flows of the Global North and Global South disqualify the financial slowdown as deglobalisation? Will the 21st Century be a deglobalised century, or are we just witnessing a new (and maybe better) face of financial globalisation?


While it is clear that trade flows collapsed and slowed down after the global financial crisis of 2008/2009 and that deglobalisation in terms of international trade has occurred ever since, the picture is less clear for capital flows. Forbes argues that financial deglobalisation is visible in the sharp and sustained decline in cross-border financial flows associated with the recent global financial crisis, with no signs of recovery. Leading think tanks and international organisations, such as the McKinsey Global Institute (MGI), the Bank of International Settlements (BIS), and the International Monetary Fund (IMF), have, however, argued that financial deglobalisation is not a reality because the decrease of financial flows is not a broad-based and sustained phenomenon. Closer scrutiny of data related to this can help us to better understand whether financial deglobalisation is happening or not.

Graph 1: Cross-border financial flows (share of world GDP) reached a peak before the crisis and have since been at a lower level, with indications that they are now flattening out
Graph 1.png
Source: own elaboration based on IFS and WEO databases (2018) (see IMF data)

As illustrated in Graph 1, the financial crisis created a structural break in the level and pace of financial globalisation. In 2007, international financial flows peaked at more than 50% of world GDP, but then global cross-border flows fell significantly in 2008 and after some recovery levelled out at around 15% of world GDP (slightly above the average for the 1990s).

G7 versus BRICS

This global average, however, does not in itself reflect different experiences in the Global North and Global South. So, let’s take on one side the advanced economies gathered in the G7 (Canada, France, Germany, Italy, Japan, UK, US) representing the Global North and, on the other, emerging economies labelled as BRICS (Brazil, Russia, India, China and South Africa), as a Global South sample, and regard their own experiences to move beyond the aggregate picture that might not reveal differences in the extent of deglobalisation. Graph 2, like Graph 1, shows cross-border financial flows, but rather than focusing on global GDP displays the regional GDPs for the Global North (G7) and the Global South (BRICS).

Graph 2: Different experiences in G7 and BRICS (cross-border financial flows as a share of regional GDPs)
Financial deglobalisation(?)

Graph 2

Source: own elaboration based on IFS and WEO databases (2018) (see IMF data)

The graph clearly shows that the G7 grouping reached a financial peak in 2007, followed by a sharp decline in 2008/09 and poor recovery following the crisis. The graph, however, paints a very different picture for the BRICS economies. A number of factors are noteworthy in determining whether financial globalisation is also taking place in the BRICS grouping. First, the decrease in financial flows after the crisis, although important, is not as significant for the BRICS as for G7 countries. While the decline of the advanced economies was about 40 percentage points during 2008/09, amongst the BRICS economies the fall was only about 8 percentage points.

Second, in the BRICS grouping the financial flows recovery (both in level and in terms of speed) was quite remarkable. As a consequence, in 2010 the BRICS had recovered to a level well above the level in the 1990s, while the share of the G7 countries remained around 30 percentage points below the pre-crisis peak. These figures clearly show that nowadays the BRICS countries hold a similar share of financial integration (relative to their own GDPs) as the G7 countries(!). A third point worth mentioning is that BRICS’s financial flows, while insignificant in the 1990s and early 2000s, increased, on average, to about 2% of world GDP following the crisis (2010-2016). Again, this means that the gap between advanced and emerging economies is shrinking.

How global is financial deglobalisation?

The key issue is whether these dissimilarities would disqualify the labelling of the financial slowdown after the crisis as deglobalisation that after all is understood to be a widespread phenomenon. While G7 countries can’t recover financial momentum, the BRICS’s financial decline was neither sharp nor sustained. In short, there does not (yet) seem to be enough evidence to call it a collapse justifying the deglobalisation denomination.

The McKinsey Global Institute also points out here to other differences between advanced and developing countries. They argue that while cross-border capital flows for the whole world remain 60% below their peak finance momentum, in developing countries capital flows have rebounded. By estimating shares in constant terms, different than the current ones I showed, MGI arrived at the same conclusion. In addition, they emphasise the increase in South-South financial flows linked to foreign direct investment (FDI).

In the same vein the BIS argues here that even in the advanced economies, deglobalisation is restricted only to European countries. If focusing only on banking flows, consolidated by bank nationality—and not by bank location as the IMF usually presents—a broad-based deglobalisation trend is not evident. Rather, we are witnessing a European financial retreat.

Resetting financial globalisation

What is this diverse financial flows behaviour telling us? According to Mallaby, after the crisis financial flows show a “healthy correction”, defining the years leading up to the financial peak as an “aberration”. Accepting the “healthy correction” hypothesis would lead us to pose an alternative characterisation to the deglobalisation of financial markets. In this sense, words like “retreat”, “retrenchment” and even or “reverse” would be more appropriate for depicting the phenomenon. Moreover, can we say that post-crisis financial globalisation is healthier than the one registered before the crisis? Maybe it is not about lower shares, but better ones, leading to sounder financial markets where the financial globalisation reach is set by policymakers and regulators and not by an indomitable financial speculation, heading, as usual, to a crisis.

Whether is the rising regulation, the macro-prudential policies or just plain and simple risk aversion after the aberration (or a mix of all of them), financial globalisation’s newest phase looks, in general, the least volatile phase that might be least prone to crisis. However, is this new shape of globalisation good news? As usual, it depends. The Global North cannot afford to cause another boom-and-bust cycle whose impacts and costs are, indeed, globalised while their benefits are not. On the other hand, Global South recovery is not necessarily good news either. It is not clear that financial flows linked to ODA, debt, remittances or even FDI alone can drive economic growth or development.

Hence, cautionary measures should be taken (or reinforced) by governments to allocate foreign capital where is needed and do not validate unregulated financial speculation, especially the one triggered from the Global North. Despite their heterogeneity and criticism, the UN Sustainable Development Goals (SDGs) might be a good starting point regarding what is required to finance with foreign capital and what it’s not. Additionally, countries of the Global South must stand up and speak out, jointly, in international fora, warning about the dangers of financial aberrations. This should be presented as a global problem (even when it originated in the Global North) rather than a regional phenomenon or as a once-in-a-lifetime kind of thing, which it may not be.

Will the 21st Century be a deglobalised century, or are we just witnessing a new (and maybe better) face of financial globalisation? Only time and, hopefully, financial markets regulators, will tell.


Also see: Is anti-globalisation only a preoccupation in the Global North? by Rory Horner, Seth Schindler, Daniel Haberly and Yuko Aoyama


Untitled.pngAbout the author:

Haroldo Montagu is a recent graduate of the ISS. Before studying at ISS, the author was appointed as National Director of Development Strategies and Macroeconomic Policy at the Ministry of Economy and Public Finance of Argentina. He also worked as a consultant for the Economic Commission for Latin America and the Caribbean. He teaches topics in International Economics and Economic Development at university level in Argentina.

 

 

Deglobalisation Series | China: ‘restarting’ globalisation? by Chenmei Li

Deglobalisation Series | China: ‘restarting’ globalisation? by Chenmei Li

After benefiting from international trade and investment for the past 30 years, China’s global position is starting to change. This is perhaps most evident when regarding its position at the ...

The imperial intentions of Trump’s trade war babble by Andrew M. Fischer

The imperial intentions of Trump’s trade war babble by Andrew M. Fischer

In defence of his trade war with China, Trump claims that ‘when you’re $500bn down you can’t lose.’ The problem with this stance is that persistent US trade deficits with ...

Deglobalisation Series | Challenges to the liberal peace by Syed Mansoob Murshed

We may have reached a stage where economic interactions have become so internationalised that further increases in globalisation cannot deliver greater prospects of peace.[1] But the logic of the capitalist peace still holds water; the intricate nature of the economic interdependence between advanced market economies almost entirely rules out war, but other hostile attitudes can still persist, and even grow.  


Liberal peace theories posit that peace among nations is not a result of a balance of power, but rests on the pacific nature of commonly held values, economic interdependence, and mutual membership of international organisations. Ideal theories of the liberal peace can be traced back to the work of Immanuel Kant, who in his essay on the Perpetual Peace[2] argued that although war is the natural state of man, peace could be established through deliberate design. This requires the adoption of a republican constitution simultaneously by all nations, which inter alia would check the war-like tendencies of monarchs and the citizenry; the cosmopolitanism that would emerge among the comity of nations would preclude war. The European Union is the most obvious, albeit imperfect, example.

Mirroring Kant’s thoughts is the contemporary philosopher John Rawl’s [3] notion of peace between liberal societies, which he refers to as peoples and not states. He speaks of well-ordered peoples. These are mainly constitutional liberal democracies, which arrive at such a polity based on an idea of public reason. In a well-ordered society, based on public reason, human rights are respected, and the distribution of primary goods (a decent living standard, dignity, respect and the ability to participate) for each citizen’s functioning is acceptably arranged.

Another version of the liberal peace theory based on economic interdependence is the ‘capitalist’ peace notion.[4] The intensity of international trade in an economy is the least important feature in the peace engendered by capitalism. The nature of advanced capitalism makes territorial disputes, which are mainly contests over resources, less likely, as the market mechanism allows easier access to resources. The nature of production makes the output of more sophisticated goods and services increasingly reliant on “ideas” that are research and development intensive, and the various stages of production occur across national boundaries. Moreover, the disruption to integrated financial markets makes war less likely between countries caught up in that web of inter-dependence. It is also argued that common foreign policy goals reflected in the membership of international treaty organisations (such as NATO and the European Union) also produce peace.

The chances of the well-ordered, tolerant societies envisaged by Rawls living in peace within themselves and with one another have greatly diminished with the recent rise in inequality, the growing wealth and income share of the richest 1-10% of the population, and the rise in varieties of populist politics. Also, the quality of Kant’s foedus pacificum has been dealt a severe blow by nations such as the UK choosing to leave the European Union, adversely affecting the utilisation of soft power via common membership of international organisations.

We also may have come to a stage where economic interactions such as the exchange of goods, provision of services and the movement of finance have become so internationalised that further increases in globalisation cannot deliver greater prospects of peace.[5] But the logic of the capitalist peace still holds water; the intricate nature of the economic interdependence between advanced market economies almost entirely rules out war, but other hostile attitudes can still persist, and even grow, given recent developments. This includes the rise in populist politics.

The rise of populist politics

The growth in inequality, but more especially the creeping rise in the social mobility inhibiting inequality of opportunity, has spawned the illiberal backlash manifesting itself in the rise in mainly right wing populist politics. A large segment of immiserated voters vote for populists knowing that, once elected, the populist politician is unlikely to increase their economic welfare, as long as they create discomfiture for certain establishment circles, vis-à-vis whom these voters see themselves as relatively deprived. Immigrants and immigration is scapegoated and made responsible for all economic disadvantage and social evils following the simplistic and simple-minded message of right-wing demagogues. It has to be said that left-wing populism, too, has emerged in many societies, mainly among educated millenarians whose economic prospects are often bleaker than those of their parents, and in regions (such as Latin America) with a strong Peronist tradition.

By contrast, during the golden age, which lasted for a little over a quarter of a century after World War II, no particular group in society was disadvantaged by economic growth and the advance of capitalism. The elites appeared to internalise the interests of the median and below-median income groups in society. Social mobility was palpably present, and social protection cushioned households against systemic and idiosyncratic economic shocks. The growth in inequality linked to globalisation and labour-saving technological progress since the early 1980s has disadvantaged vast swathes of the population: it first pauperised the former manufacturing production worker through either job offshore relocation or stagnating real wages, and latterly it is emasculating even median service sector occupations. At the same time the income and wealth share of the top 1-10% of the population grows at an accelerating pace, faster than the rise in national income.[6]

In developing countries there has been a growth in autocratic tendencies, the liberal half of a liberal democracy, even when the other part of democracy, the electoral process, is broadly respected. The use of plebiscites by strong men to garner greater power has been a frequently used tool. There is even talk of autocratic rulers delivering development and economic growth and autocratic tendencies may be greater in nations that have achieved economic structural transformation. But the logic of the “modernisation”[7] hypothesis that argues that democracy is demanded by society as it becomes affluent may still ring true, even if the process is non-linear, and other complex factors need to be taken into account.

A hyper-globalisation trilemma?

Faced with these challenges, we need to abandon our “Panglossian” faith in the ability of markets to always do good. The rules of globalisation and capitalism only serve elites who are owners of internationally mobile skills and wealth. There may be a hyper-globalisation trilemma[8], whereby the simultaneous achievement of national sovereignty, democracy and hyper-globalisation is impossible. It is worth reiterating that hyper-globalisation refers to a situation where for the collective the pains from increased globalisation in terms of adverse distributional consequences outweigh the gains in terms of enhanced income.

Earlier advances of globalisation was made relatively more acceptable in Europe compared to the United States, given the greater prevalence of social protection in the continent. Gradually, after 1980, and especially since the dawn of the new millennium, more and more groups have been disadvantaged by globalisation, and the politics of austerity has diminished social protection, fraying pre-existing domestic social contracts. Thus, many advocate a more limited globalisation, akin to the halcyon days of the golden age, also known as the Bretton Woods era (1945-73), whose hallmark was that the demands of globalisation never exercised veto powers on the domestic social contract.

A retreat from hyper-globalisation is desirable, but not through channels that diminish international cooperation and partnership, like Brexit and President Trump’s protectionist sabre rattling that undermine agreements like NAFTA. What is needed is internationally coordinated checks on hyper-globalisation and agreements on certain wealth taxes on the richest individuals, which is needed to address the alarming rise in wealth inequality given the fact that social protection can only have a palliative, and not curative, impact on these stupendous inequalities.


References:
[1] Rodrik, Dani (2017) Straight Talk on Trade: Ideas for a Sane World Economy, Princeton: University Press.
[2] Kant, Immanuel (1795) Perpetual Peace and Other Essays on Politics, History and Morals, reprinted 1983. Indianapolis: Hackett Publishing.
[3] Rawls, John (1999) The Law of Peoples, Cambridge, MA: Harvard University Press.
[4] Gartzke, Erik (2007) ‘The Capitalist Peace’, American Journal of Political Science 51(1): 166-191.
[5] Rodrik, Dani (2017) Straight Talk on Trade: Ideas for a Sane World Economy, Princeton: University Press.
[6] Piketty, Thomas (2014) Capital in the Twenty-first Century, Cambridge, Massachusetts: Harvard University Press.
[7] Lipset, Seymour (1960) Political Man: The Social Bases of Politics. New York: Doubleday.
[8] Argued by Dani Rodrik; see, for example, Rodrik (2017), op. cit.

Also see: Backtracking from globalisation by Evan Hillebrand


csm_6ab8a5ef34f1a5efe8b07dff07d52162-mansoob-murshed_0833a7fcf4About the author:

Syed Mansoob Murshed is Professor of the Economics of Peace and Conflict at the International Institute of Social Studies (ISS), Erasmus University Rotterdam in the Netherlands. His research interests are in the economics of conflict, resource abundance, aid conditionality, political economy, macroeconomics and international economics.

 

 

Deglobalisation Series | Backtracking from globalisation by Evan Hillebrand

Deglobalisation Series | Backtracking from globalisation by Evan Hillebrand

While globalisation still enjoys strong support in the Global South, major economies in the Global North now seem less enthusiastic about its purported benefits. This article explores how the United ...

Deglobalisation Series | Is anti-globalisation only a preoccupation in the Global North? by Rory Horner, Seth Schindler, Daniel Haberly and Yuko Aoyama

Deglobalisation Series | Is anti-globalisation only a preoccupation in the Global North? by Rory Horner, Seth Schindler, Daniel Haberly and Yuko Aoyama

A remarkable 'big switch'  has emerged from the turn of the millennium in terms of attitudes towards and discourses over globalisation. But while the world is currently witnessing a new backlash ...