By Anis Chowdhury
SYDNEY, Jan 17 2023 – Inflation worries topped Ipsos’s What Worries the World survey in 2022 overtaking COVID concerns. The return of inflation caught major central banks, e.g., the US Federal Reserve (Fed), Bank of England, European Central Bank “off guard”. The persistence of inflation also surprised the International Monetary Fund (IMF). The return of inflation and its persistence exposed the poverty of the economics profession, unable to agree on its causes and required policy responses. It also exposed the profession’s anti-working class biases.

Anis Chowdhury

Inflation goof
Almost all major central banks as well as the IMF dismally failed to see the coming of inflation. In December 2020, the US Fed forecast that prices would rise by less than 2% in 2021 and 2022. It failed spectacularly when in December 2021, it estimated that inflation in 2022 would be just 2.6% even though prices were already rising by more than 5% a year.

The US Fed was not alone in failing to see inflation coming. The Governor of Australia’s central bank – the Reserve Bank of Australia (RBA) – was so confident of low inflation that he declared in March 2021 that the interest rate would remain at a historic low until at least 2024. Inflation in advanced economies during 2021 exceeded the average of forecasters’ expectations by around 5–8 percentage points. The IMF’s forecasts have badly and repeatedly undershot inflation.

There was a widespread view among most central bankers and leading economists that the price increases (or inflation) that began in mid-2021 were temporary, and price increases would slow or inflation would drift downwards in 2022. Some, of course, insisted otherwise, and wanted immediate anti-inflationary measures. Thus, policy confusion ruled.

Inflation phobia and dogma
Soon inflation phobia overtook and central banks were advised to act decisively with interest rate hikes even if it meant slowing the economy or a rise in unemployment. Exaggerated claims were made without evidence that not acting now would be more costly later.
References to rare episodes of hyperinflation were made to justify tough policy stances.

The dogmatic inflation hawks ignored the fact that, in most cases, inflation does not accelerate to become harmful hyperinflation, but remains moderate. They also ignored their own neo-classical macroeconomic model, which suggests small welfare loss from moderate inflation.

Notwithstanding the IMF’s Article IV preamble which provides that economic policies should aim to foster “orderly economic growth with reasonable price stability, with due regard to [country specific] circumstances”, a one-size-fits-all policy of steep interest rate hikes became the only medicine to be applied to achieve a universal inflation target of 2%, a figure plucked from thin air. Yet, central bankers and mainstream economists boast their credibility!

Inflation excuse for class war
Inflation is primarily an expression and outcome of conflicting claims over the distribution of national output and income, e.g., firms’ profit mark-ups vis-à-vis workers’ wages. Thus, no sooner inflation spiked early in the year due to slow adjustment of COVID-induced supply shortages to pent-up demand, exacerbated by war and sanctions, leading central bankers and mainstream economists found an excuse to weaponise economic policies against the working class.

Stoking the fear of wage-price spirals, they advocate the use of an interest rate sledgehammer to create unemployment and, in turn, discipline labour. This is despite research within the IMF and the Reserve Bank of Australia which found no evidence of wage-price spirals since the 1980s due to declines in labour’s bargaining power. Thus, Bloomberg headlined, “Fattest Profits Since 1950 Debunk Wage-Inflation Story of CEOs”.

Research conducted by the IMF also found increases in firms’ or corporations’ market power, resulting in higher prices and profit margins. Yet, the IMF does not think such factors “are contributing in any sizeable way to the current inflationary environment”. Instead, it justifies such fattening of profits on the ground that “they provide flexible buffers between general wage and general price increases” and that it is only a catching-up “after taking a hit in 2020”!

But no such compassion is extended to the working people who have lost their lives and livelihoods. The calls for “front-loaded interest rate hikes simply got louder. The Bank for International Settlements (BIS) warned, “With the prospect of higher wages as workers look to make up for the purchasing power they lost, inflation could be high for long”.

Labour a clear loser
Labour is a clear loser. Labour’s income share in the GDP has been in decline since the early 1970s. Casualisation, off-shoring, anti-union legislation and technological progress have greatly reduced labour’s bargaining power, while privatisation and dilution of anti-monopoly legislation hugely strengthened corporate power and their collusive anti-competitive behaviour. Meanwhile, CEO compensation packages swelled to obnoxious levels, rising 940% since 1978 in the US as opposed to a 12% rise for workers during that period. Profiting from the pandemic, CEO pay increased by 16% in 2020 when workers suffered, and to a record level in 2021.

Leading central bankers and mainstream economists conveniently created a dogma around a 2% inflation target to justify their anti-labour stance. The 2% inflation target has become a global norm akin to the law of gravity, even though it has no theoretical or empirical basis. The law of gravity differs depending on altitude, but the 2% target is said to be universal regardless of circumstances!

Collateral damage
Meanwhile, the advanced countries’ inflation fight is causing adverse spillover into developing countries. Higher interest rates have slowed the world economy, and triggered capital outflows from developing countries, thereby depreciating their currencies and lowering their export earnings.

Together, these are causing devastating debt crises in many developing countries, similar to what happened in the 1980s. The rating agency S&P estimates that central bank rate rises could land global borrowers with US$8.6t in extra debt servicing costs in the coming years.

Instead of providing genuine debt-relief, the G20 kicked the can down the road. As wealthy nations failed the poor countries during the pandemic, the IMF is moving to debt-distressed countries with conditionality-laden one-size-fits-all austerity packages. Thus, a Foreign Policy op-ed asked, “The International Monetary Fund: Holy Grail or Poisoned Chalice?”

Meanwhile, the chiefs of the World Bank and the BIS urged “supply-side” policies professed to increase labour force participation and investment. These are code words for further labour market deregulation, privatisation and liberalisation.

IPS UN Bureau

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By Thalif Deen
UNITED NATIONS, Jan 17 2023 – A new variant of Covid-19, spreading across New York city, is forcing businesses, banks and high-powered financial institutions to re-introduce flexible working hours after a brief hiatus.

At the United Nations, the lockdown has reduced the 39-storeyed Secretariat building to a veritable ghost town since most staffers continue to work from home— at least two or three days per week

The UN, which has office space, either on-rent or on long-term commercial leases outside the Secretariat, is looking for options to terminate some of these contracts– or have already done so.

When the issue of rented office space came up at a meeting of the UN’s Administrative and Budgetary Committee back in December 2015, it was revealed that over 5,300 staffers were in off-campus, leased-buildings at a cost of more than $56 million a year.

But since the pandemic shutdown, beginning March 2020, the UN has been downsizing its off-campus operations.

Asked for Secretary-General Antonio Guterres’ reaction to a “completely empty building at the moment”, his Spokesperson Stephane Dujarric told reporters: “We have experience with flexible working hours. I think it shows that it can be very productive in many cases. We continue to be also guided by recommendations from our health and safety experts.”

Asked about the rented properties for several UN departments and divisions, currently sporadically occupied, Dujarric said: “We’ve shrunk our footprint from rental properties that we have in Manhattan”.

This was in fact a trend before COVID with the “hot-desking” that has been put in place in many departments where people don’t have assigned spaces, but they will just take spaces as they come every day, given that– especially in a lot of departments — there is a lot of travel, Dujarric said.

“So, we’ve been able to shrink our real estate expenses,” he noted, while jokingly using a Hollywood metaphor: “Look Ma, I shrank the UN.”

Ian Richards, a development economist based in Geneva and a former President of the Coordinating Committee of International Staff Unions and Associations, told IPS through successive resolutions on what is called “flexible workplace strategies,” the General Assembly has been installing “hot-desking” at UN offices in New York, Geneva and elsewhere.

Hot-desking rules are premised on there being fewer desks than people (staff, consultants, interns) and therefore require staff to work part-time from home.

Further, and this is well documented in the scientific literature, hot-desking spaces do not allow staff to actually focus on their work, pushing more staff to work from home part of the week in order to be more productive, said Richards.

“Obviously, certain jobs lend themselves better to part-time telecommuting than others —and this is reflected in how the policy is implemented.”

However, he noted, the feedback from managers is that working from home part of the week improves productivity and motivation.
“It is also a non-negotiable requirement in the current job market if the UN wants to remain a competitive employer and keep attracting the cutting-edge skills it needs”.

In a light-hearted piece, the BBC last week focused on flashy new job titles resulting from flexible working hours: Chief Visionary Officer, Development Guru, Chief Innovation Evangelist and Chief Remote Officer.

Meanwhile, according to Cable News Network (CNN), virologists and epidemiologists say the new Omicron sub-lineage, the XBB 1.5, has features that give it the potential to drive a new surge of Covid-19 cases in the US, although it’s still unclear how large that wave will be and whether it could send many more people to the hospital.

Maria Van Kerkhove, technical lead on COVID-19 at the World Health Organization (WHO) is quoted as saying the XBB.1.5 is the “most transmissible subvariant detected yet”.

Speaking of flexibility at work, the Geneva-based International Labour Organization (ILO) last week released a report pointing out that flexible working hours can benefit productivity and also advance economies and businesses while helping employees and families achieve a better work-life balance.

The issues surrounding working hours and conditions are “at the heart of most labour market reforms and evolutions taking place in the world today”, Branch Chief Philippe Marcadent said in a foreword to ILO’s Working Time and Work-Life Balance Around the World.

“The number of hours worked, the way in which they are organized, and the availability of rest periods can significantly affect not only the quality of work, but also life outside the workplace”.

The study, described as the first to focus on work-life balance, examines the affects that working hours and time schedules have on the performance of businesses and their employees.

Covering the periods before and during COVID-19, the report reveals that more than a third of all employees are regularly working more than 48 hours per week, while a fifth of the global workforce is labouring fewer than 35 hours per week, on a part-time basis.

“The so-called ‘Great Resignation’ phenomenon has placed work-life balance at the forefront of social and labour market issues in the post-pandemic world”, said lead author Jon Messenger.

The study analyses different work schedules and their effects on work-life balance, including shifts, arrangements for being on call, compressed hours, and hours-averaging schemes.

Innovative working-time arrangements, such as those introduced during the COVID-19 crisis, can bring great benefits, including greater productivity and improved work-life balance, said Messenger.

“This report shows that if we apply some of the lessons of the COVID-19 crisis and look very carefully at the way working hours are structured, as well as their overall length, we can create a win-win, improving both business performance and work-life balance”, he added.

However, the report cautioned that the benefits of some flexible arrangements, such as spending more time with the family, may also be accompanied by greater gender imbalances and health risks.

IPS UN Bureau Report

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By Busani Bafana
BULAWAYO, Jan 17 2023 – African countries, many reeling under high debt and experiencing economic recession, could benefit from the reallocation of Special Drawing Rights (SDR), financial instruments of the International Monetary Fund (IMF).

SDRs are interest-bearing units of accounts created by the IMF in 1969 to increase the official reserves of member countries. External shocks that have hit the world in the last two years have reversed socioeconomic gains and efforts to protect vulnerable communities in Africa, says Adam Elhiraika, Director of the Macroeconomics and Governance Division at the Economic Commission for Africa (ECA).

Normally, many African countries would get concessional finance, borrow money from the markets or mobilise it domestically – all options the global pandemic has compromised.

The ECA, in collaboration with African ministries, is advocating for the issuance of new SDRs and the re-allocation of existing SDRs to countries most in need.

“We need to reform the G20 Common Framework to make access to international financial markets and debt restructuring effective and inclusive,” Elhiraika told IPS in an interview.

He added that: “Africa would benefit from having a permanent seat at the G20 through its African Union, just as European Union and the Organization for Economic Cooperation and Development (OECD) are represented. This will bring the voice of more than one billion people into the G20 processes, including discussions around debt restructuring and inequality of the SDR quota system.”

To date, nearly USD 1 trillion US dollars has been allocated by the IMF, including USD 456 billion and SDR equivalent to USD 650 billion, approved in August 2021 to help low and middle-income countries cope with the impact of COVID-19.

According to the United Nation Conference on Trade and Development (UNCTAD), African countries need more than 200 billion USD to counter the socioeconomic impacts of the COVID-19 pandemic.

Adam Elhiraika, Director for the Macroeconomics and Governance Division at the Economic Commission for Africa. Credit: Daniel Getachew

Excerpts:

IPS: Why is it necessary to reallocate SDRs, and how would this reallocation benefit African countries?

AE: SDR is a supplementary reserve asset which the Board of the IMF unconditionally allocates to all or part of its membership when it determines that there is a need to boost global liquidity. Allocations are based on economic size hence poorer countries receive less than rich countries. For instance, Africa collectively received 5.1 percent of the recent SDR650 allocation. Consequently, while the SDR allocation provided very welcome liquidity to African countries to cope with the pandemic crisis, the considerable financing needs associated with the pandemic and the overlapping crises currently facing Africa (including the climate, food, and energy crises) mean that Africa needs more than its current allocation.

The recent SDR allocation has mostly been used by African countries to bridge their post-COVID liquidity challenges. More specifically, most countries in Sub-Saharan Africa allocated part of their SDR holdings to address their pandemic response or social spending needs. At least 41 Sub-Saharan countries made use of SDRs for various public spending, including vaccine procurement and pandemic relief, ration cards, welfare payments, wages, and budget support.

Further, the median SDR utilization rates of G7 countries are about 5.9 percent, which means that G7 members alone could potentially reallocate $266 billion of SDRs to vulnerable countries. So, recycling/reallocations of the unused SDRs from countries with strong external positions, such as G7 and G20, could provide much-needed and affordable resources to vulnerable African countries.

Already, African countries are constrained by high debt, is tapping SDRs a viable route to affordable financing for economic development and SDGs?

SDR reallocations are made by countries that choose to make their own SDRs available to other countries that need them by lending them to an institution like the IMF. Tapping into SDRs is one of the options for improving Africa’s access to affordable external finance.

African ministers have been advocating for an acceleration of the implementation of SDR re-allocation mechanisms aligned with the needs of African economies. This includes considering channelling unused SDRs by G20 through regional banks, such as the African Development Banks, to support the development financing of Africa. Since the interest rates associated with SDR lending are much lower than prevailing market rates, on-lending SDRs via market mechanisms can lower the cost of borrowing and leverage critical investments in countries with market access.

IPS: The ECA has advocated for the reform of the IMF and Global Financial Architecture; why and what benefits would this reform have for African countries in need of development finance?

AE: Recent global shocks, including the COVID-19 pandemic and the recent war in Ukraine, have exacerbated the already constrained Africa’s fiscal space. While Africa has benefited from bilateral and multilateral support, particularly during the pandemic, the global financing architecture is still grossly inadequate for low—income countries and Africa.

In consultation with African finance ministries and others, the High-Level Working Group is working to identify structural challenges within the Global Financial Architecture impacting African economies. Furthermore, it also working to advance near and long-term policy recommendations for the IMF’s consideration which proposes a new working agenda for the IMF to better respond to the challenges Africa faces in the current global financial architecture.

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By Taehun Lim
GWANGIU, South Korea, Jan 17 2023 – Given the tensions in the Indo-Pacific, a co-operation between South Korea, Japan and NATO sends a message of deterrence and shared liberal values.

The year 2022 was pivotal for the West and the NATO military alliance. Russia’s invasion of Ukraine and China’s mounting military threats against Taiwan forced NATO to recalibrate its risk analysis.

The NATO summit in Madrid in June was, therefore, remarkable in that two far-eastern states, South Korea and Japan, were invited. While Japan already has the status of a Western actor within the framework of the G7, the invitation to South Korea to attend the summit was particularly surprising.

Although Seoul has been a global partner of NATO since 2006, co-operation to date has been essentially diplomatic. South Korea had already been invited to NATO meetings of foreign ministers several times before, but this had not led to any geopolitical commitment on its part to NATO or Europe.

But circumstances have changed. The invitation to the summit was driven by NATO’s most important member by far – the US, an ally of South Korea. Does this mean that Japan and South Korea will now take on new significance for Europe and the Far East in terms of security policy?

There was immediate praise for the Indo-Pacific strategy from Washington.

On 28 December, the South Korean government under new President Yoon Suk-yeol published a strategy for the Indo-Pacific region for the first time. It stated that the country’s focus should be on promoting freedom, peace and prosperity through the creation of a rules-based order and co-operation on the rule of law and human rights.

The 43-page document includes only one paragraph on China, Seoul’s largest trading partner and the rival of its most important ally, the US. On taking office in May, Yoon announced a hard line towards China and since then has intensified the security co-operation with the US.

The Indo-Pacific strategy indirectly addresses fears of military action by China against Taiwan and calls for a resumption of the summit meetings between South Korea, Japan and China, the last of which took place in 2019.

It states that co-operation with Japan is essential for promoting co-operation and solidarity between like-minded nations in the Indo-Pacific region – a clear indication that Yoon wants to improve relations between these neighbouring countries.

Seoul also wants to expand co-operation with the Quad – the Quadrilateral Security Dialogue between Australia, India, Japan and the US – which is seen as a counterweight to China’s ambitions in the region. There was immediate praise for the Indo-Pacific strategy from Washington.

Advantages of closer co-operation for NATO

Closer ties between South Korea and Japan and a security partnership with the two East Asian states would have strategic advantages for NATO. With South Korea, it can benefit immediately from the strength of the country’s armed forces, not least in light of China’s military build-up in the Indo-Pacific.

The South Korean military is well-equipped and combat-ready because of constant North Korean military provocations. Moreover, South Korea holds large-scale joint military exercises with the US every year. Secondly, South Korea can contribute to NATO through co-operation on armaments, and can supply high-quality weapons.

The competitiveness of its arms industry is demonstrated, for example, by Poland’s purchase of South Korean tanks and howitzers in response to Russia’s invasion of Ukraine. Third, as a leader in digital technology, South Korea can strengthen NATO’s cybersecurity against Russia and China (and North Korea).

Fourth, as a globally important microchip manufacturer, South Korea – along with Japan and Taiwan – is seen by the US as part of a microchip alliance whose task is to isolate China completely from the microchip supply chain. Conversely, South Korea thus serves as a reliable partner in the microchip supply chain for NATO countries.

The current Japanese government under Fumio Kishida wants to raise the country’s military spending to two per cent of GDP by 2027 and to acquire 500 Tomahawk cruise missiles. Such an enhancement of Japan’s military capabilities would provide NATO with further strategic options in the face of China’s military build-up in the Indo-Pacific.

Advantages for South Korea and Japan

From a Far Eastern perspective, a strategic partnership with NATO would help in managing the Chinese military threat.

As a first step, joint military exercises involving NATO and East Asian countries could be held in the Indo-Pacific (where the US, France, the UK and Germany already have a military presence) or in Europe, in order to enable, for instance, the defence of free and unfettered trade flows in the South China Sea.

As a second step, the Far Eastern countries and NATO could perhaps establish an intelligence alliance comparable to the ‘Five Eyes’ of the Anglo-Saxon powers. This would enable the two sides of the alliance to exchange military intelligence and facilitate the formulation of joint strategies towards China and Russia.

As a third step, NATO and the Far Eastern countries could establish an informal military alliance similar to the Quad, which would strengthen collective security on both sides.

Co-operation between South Korea and NATO not only sends a clear message about deterrence but also represents a commitment to the defence across the world of the liberal values that both sides share.

For a successful strategic partnership between NATO and the Far East to develop, relations between South Korea and Japan must improve significantly. The smouldering conflict over how to address the issue of Japan’s colonial history stands in the way of close co-operation.

The enforced prostitution of Korean women during the colonial period, the visits of Japanese politicians to the Yasukuni Shrine, where Japanese war criminals are buried, and the border dispute over the Liancourt rocks (Dokdo in Korean, Takeshima in Japanese) are some of the unresolved historically controversial issues.

This is compounded by the Japanese trade sanctions imposed on South Korea in 2019, which aim to impede the further rise of the South Korean industry. Fortunately, the current South Korean government under Yoon Suk-yeol is keen on significantly improving relations with its neighbour in order to boost a security co-operation between the two sides vis-à-vis China and North Korea.

The Japanese government will now have to respond to the signals from Seoul, if necessary, also involving the US as a mediator.

NATO’s decision in August to accept South Korea’s request to designate an embassy to represent the country in dealings with the military alliance bodes well for the development of a close strategic partnership. Given the rising military tensions in the Indo-Pacific and China’s military threats against Taiwan, co-operation between South Korea and NATO not only sends a clear message about deterrence (and thus the prevention of war) but also represents a commitment to the defence across the world of the liberal values that both sides share.

Dr Taehun Lim, who works at the Institute for Eurasian Research and Humanities at Chonnam National University, South Korea, studied international politics at the University of Strasbourg and received his PhD in the same field from the University of Cologne. From 2011 to 2013, Dr Lim served as an artillery lieutenant in the South Korean army.

Source: International Politics and Society (IPS)-Journal published by the International Political Analysis Unit of the Friedrich-Ebert-Stiftung, Hiroshimastrasse 28, D-10785 Berlin

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