Fri, Jan 15, 2016 - Page 9 News List

Last year saw profound changes to the geo-economic order

By Joseph Stiglitz

Last year was a memorable one for the global economy. Not only was overall performance disappointing, but profound changes — both for better and for worse — occurred in the global economic system.

Most notable was the Paris climate agreement reached last month. By itself, the agreement is far from enough to limit the increase in global warming to the target of 2°C above pre-industrial levels. However, it did put everyone on notice — the world is moving, inexorably, toward a green economy.

One day, not too far off, fossil fuels will be largely a thing of the past. So anyone who invests in coal now does so at his or her peril. With more green investments coming to the fore, those financing them would, we should hope, counterbalance powerful lobbying by the coal industry, which is willing to put the world at risk to advance its shortsighted interests.

Indeed, the move away from a high-carbon economy — in which coal, gas and oil interests often dominate, is just one of several major changes in the global geo-economic order. Many others are inevitable, given China’s soaring share of global output and demand.

The New Development Bank, established by the BRICS nations — Brazil, Russia, India, China, and South Africa — was launched last year, becoming the first major international financial institution led by emerging nations. In addition, despite US President Barack Obama’s resistance, the China-led Asian Infrastructure Investment Bank was also established and is to start operations this month.

The US did act with greater wisdom where the yuan was concerned. It did not obstruct the currency’s admission to the basket of currencies that constitute the IMF’s reserve asset — the Special Drawing Rights. In addition, five years after Obama’s administration agreed to modest changes in the voting rights of China and other emerging markets at the IMF — a small nod to the new economic realities — the US Congress finally approved the reforms.

The most controversial geo-economic decisions last year concerned trade. Almost unnoticed after years of desultory talks, the WTO’s Doha Development Round — initiated to redress imbalances in previous trade agreements that favored developed nations — was given a quiet burial. The US’ hypocrisy — advocating free trade, but refusing to abandon subsidies on cotton and other agricultural commodities — had posed an insurmountable obstacle to the Doha negotiations. In place of global trade talks, the US and Europe have mounted a divide-and-conquer strategy, based on overlapping trade blocs and agreements.

As a result, what was intended to be a global free-trade regime has given way to a discordant managed-trade regime. Trade for much of the Pacific and Atlantic regions is to be governed by agreements, thousands of pages in length and replete with complex rules of origin that contradict basic principles of efficiency and the free flow of goods.

The US concluded secret negotiations on what might turn out to be the worst trade agreement in decades, the Trans-Pacific Partnership (TPP) — which now faces an uphill battle for ratification, as all the leading Democratic presidential hopefuls and many of the Republican presidential hopefuls have weighed in against it.

The problem is not so much with the agreement’s trade provisions, but with the “investment” chapter, which severely constrains environmental, health and safety regulation, and even financial regulations with significant macroeconomic impacts.

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