Normative Narratives


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The Evolution of the Post-WWII International Order

As representatives from the IMF, World Bank, and the G20 converged on Washington last week, there was a sense that America may be losing its position as the main guarantor of international order:

As world leaders converge here for their semiannual trek to the capital of what is still the world’s most powerful economy, concern is rising in many quarters that the United States is retreating from global economic leadership just when it is needed most.

Washington’s retreat is not so much by intent, Mr. Subramanian said, but a result of dysfunction and a lack of resources to project economic power the way it once did. Because of tight budgets and competing financial demands, the United States is less able to maintain its economic power, and because of political infighting, it has been unable to formally share it either.

Other experts and historians, however, say too much can be made of the moment. Walter Russell Mead, a professor of foreign affairs at Bard College, noted that the rise of China as an economic force was inevitable, and that its establishment of a rival lending institution was far different from the international behavior of the Soviet Union and communist Chinese during the Cold War.

Then, he said, America’s rivals were trying to destroy and replace the economic order established by the United States and Britain after World War II. Now, emerging powers are emulating it, however imperfectly.

Sure other countries have risen in prominence since America stood as the lone super-power after the Cold War, but has this really resulted in America’s decline? I would argue that building up strong allies to help promote America’s vision of international order–one based on democracy, human rights, economic and defensive interdependence, and more recently environmentally sustainable economic development–was exactly why the U.S. took the lead in setting up the United Nations and the Brenton Woods Institutions (the World Bank, IMF, and GATT).

Therefore, in assessing America’s influence over international order, we should consider how these institutions have evolved. While they were all conceived with the best of intentions, good intentions do not always lead to good outcomes. Have these institutions been able to learn from their mistakes and make meaningful contributions to maintaining international order? Lets consider them on a case by case basis:

The International Monetary Fund (IMF):

The IMF was originally conceived to promote currency stability and help countries overcome short-term balance of payments issues. But as technological advances made the world smaller, the IMF took on a much larger mandate, and began extending loans to help developing countries modernize. The so called “Washington Consensus” linked development loans to “ex-post” (after the fact) conditions such as hitting fiscal targets (reducing the size of government) and liberalizing trade.

While these policies by and large do promote growth in already developed countries, they ignored the historic lessons of the world’s developed countries. Every advanced country relied on some degree of protectionism to cultivate its own industries and government spending to build both physical infrastructure and a skilled workforce as it modernized.

The “Washington Consensus” programs did not allow for policy space based on the historical experiences and current realities in the countries they intended to help. As I have often written, economics–particularly development economics–is highly context-sensitive; the “Washington Consensus” was simply to rigid and narrow-sighted to work.

The “Washington Consensus” was a consensus failure, and left many countries worse off than before they accepted this “help” (see “the lost decade” in Latin America). Thankfully the IMF abandoned this flawed set of policies.

The failure of the Washington Consensus led to IMF to reconsider how it does business–the “conditionality” attached to its loans. Instead of relying on a rigid set of targets a country must meet in order to continue to receive support, the IMF now focuses on pre-set “ex ante” conditionality. If a country has a sound macroeconomic position, it can tap into IMF financing while maintaining the policy space needed to address the needs of its citizens (and ultimately maintain its legitimacy).

The IMF will have to deal with the specter of the Washington Consensus for some time, but going forward it has evolved in meaningful ways.

The World Trade Organization (WTO):

The General Agreement on Tariffs and Trade (GATT) officially became the World Trade Organization (WTO) in 1995. The WTO sets rules for global trade and provides a forum for airing grievances. With membership covering 96.4% of global trade and 96.7% of global GDP, the WTO is unquestionably an important institution.

Critics often argue the WTO is ineffective, but any organization whose stated goal is the resolve international trade disputes is by definition going to be contentious. I would argue that the WTO has helped keep trade disputes trade disputes, and that without it many of these disputes could have ended in armed conflict.

In recent years, international trade news has been dominated by two proposed regional agreements, the trans-pacific partnership (TPP) between the U.S. and Asian economies, and the trans-atlantic trade and investment partnership (TTIP) between the U.S. and Europe.

There is no consensus as to whether regional free trade agreements (FTA) such as these undermine the global free trade movement, or if they are building blocks towards this goal. But one thing is for certain–free trade agreements create winners and losers. The winners tend to be the wealthy who are positioned to benefit from greater market access; the losers tend to be wage earners.

In the context of political dysfunction and simmering class-warfare in America and beyond, it is necessary that policies to transfer some of the gains from the “winners” to protect the “losers” of any FTA are baked into the agreements themselves. The ability of governments to address the inequality and environmental impacts of any FTA will greatly affect its historical legacy.

The United Nations (UN):

The United Nations is arguably the most important of the international institutions. In addition to providing a forum for countries to address one another, the UN also serves a global policy adviser, giving it the strongest normative mandate of any of these organizations.

The Millennium Development Goals (MDGs) are 8 specific goals whose intent is to guide the trajectory of the developing world. The successes of these goals has been uneven–some countries have a great record, while others not so much. As these goals are set to expire at the end of 2015, they are commonly viewed as beneficial but imperfect. Their successors, the Post-2015 Sustainable Development Goals (SDGs), aim to build on their successes while learning from their short-comings.

There are a number of ways the SDGs deviate from the MDGs. For one, they are much more inclusive and consultative. Seen as being drafted behind closed doors by the global elite, the MDGs were hampered from the start. Conversely, the SDGs are being drafted with input from numerous thematic and national consultations with the very people they are intended to benefit.

There is also greater emphasis on the roles of various stakeholders (governments, private sector, NGOs, civil society, and international organizations) with regards to both financing the agenda and being accountable for their operations in the developing world. “Who Will Be Accountable?” highlights these common but differentiated responsibilities, providing general guidelines for holding those who violate the SDGs accountable.

Between the launch of the Post-2015 Development Agenda (the SDGs) and the 2015 UN Climate Conference in Paris (which is expected to result in the first universal global climate treaty), 2015 will prove to be a pivotal year for sustainable human development initiatives.

One area the U.N. has not reformed sufficiently is in promoting global security. Given that security is a necessary precondition for sustainable human development, the significance of this shortcoming cannot be understated.

Nowhere has this problem been more acute than in the Middle East, where armed conflict has left 1 in 4 children out of school, led to immeasurable economic, physical, and psychological damage, and has completely overwhelmed the international humanitarian assistance network. The inability to protect children is especially alarming, as it plants the seeds for future conflicts.

The United Nations needs to respond more decisively against regimes that commit gross human rights violations. The concept of national sovereignty is meant to protect a country from outside invasion, not act as a shield for human rights abusers.

The Responsibility to Protect (R2P) was supposed to put peoples rights before national sovereignty, but it has proven to lack the teeth needed to provide meaningful protection. The need is clear, as I have called for in the past, for the UN General Assembly to have a mechanism for overruling UN Security Council vetoes. Such a reform would give the R2P the power it needs to fulfill its important mandate to prevent / end gross human rights violations.

The World Bank Group (WB):

The World Bank Group is responsible for financing development projects in the developing world. While its existence has been a “net benefit” for developing countries, the World Bank has had issues enforcing “good governance” standards on its projects, often resulting in adverse consequences for the worlds most vulnerable people:

The World Bank regularly fails to enforce its own rules protecting people in the path of the projects it bankrolls, with devastating consequences for some of the poorest and most vulnerable people on the planet, a new investigation by the International Consortium of Investigative Journalists, The Huffington Post and more than 20 other media partners have found.

The investigation’s key findings include:

  • Over the last decade, projects funded by the World Bank have physically or economically displaced an estimated 3.4 million people, forcing them from their homes, taking their land or damaging their livelihoods.
  • The World Bank has regularly failed to live up to its own policies for protecting people harmed by projects it finances.
  • The World Bank and its private-sector lending arm, the International Finance Corp., have financed governments and companies accused of human rights violations such as rape, murder and torture. In some cases the lenders have continued to bankroll these borrowers after evidence of abuses emerged.
  • Ethiopian authorities diverted millions of dollars from a World Bank-supported project to fund a violent campaign of mass evictions, according to former officials who carried out the forced resettlement program.
  • From 2009 to 2013, World Bank Group lenders pumped $50 billion into projects graded the highest risk for “irreversible or unprecedented” social or environmental impacts — more than twice as much as the previous five-year span.

Days after ICIJ informed the World Bank that the team’s investigation had found “systemic gaps” in the bank’s enforcement of its “social safeguard” rules, World Bank Group President Jim Yong Kim acknowledged “major problems” with the bank’s resettlement policies and vowed to seek reforms.

Being a “net benefit” for the developing world is not a high enough standard for the World Bank, it must adopt a “do no harm” principle in all its projects. To achieve this goal, the World Bank should emulate the UN in consulting with those who will be affected by their projects.

The World Bank has an important role to play in promoting the SDGs, but first it must get its own house in order.

Some may point to the recent rise of parallel international organizations such as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) as further signs of the deterioration of an American led international order. Indeed, there are serious governance questions these institutions must address, lest they be counter-productive in the pursuits of promoting peace and eradicating extreme poverty.

It would be most constructive to have the UN promote these values (accountability, good governance, etc.) to emerging international institutions, not the US. The UN has international legitimacy; the same message coming from the UN would likely be much more well received.

US-centric international organizations are free to work with these parallel institutions or not, and their positions can evolve as these new institutions reveal their values through their actions. But as professor Walter Mead aptly points out, these institutions are not challenging America’s Post WWII vision of international order, they are doubling-down on it. As the saying goes, imitation is the greatest form of flattery.

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Technical Difficulties

NN Community,

My computer gave out on me, so I will be taking a forced break until I get t fixed. Hopefully that will be soon (I can’t put together high quality blogs on a mobile device, we ain’t runnin’ a fashion blog over here!).

In the iterim, feel free to check out my microblog on facebook, where I regularly post the articles that underpin Normative Narratives. 


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Transparency Report: Tunisia’s Test

On March 18th, terrorists took hostages at the Bardo Museum in Tunisia’s capital city of Tunis. When the dust settled, 22 innocent people had been murdered, mostly foreign tourists (20) but also Tunisian nationals (2).

Tunisia is to date the lone success story of the “Arab Spring”. This distinction, while undoubtedly a positive, makes Tunisia a target for extremist groups who are ideologically opposed to moderization, democracy, and human rights (“Western values”). It was not, therefore, a question of if extremists would try to scare the democracy out of Tunisia, but when and how.

That question was partially answered on March 18th, and unfortunately there are no guarantees that extremists groups will not attack again. Tunisia’s security forces must remain vigilant, and should receive substantial support from the international community. Seeing Tunisia succeed as a stable, functioning democracy is not only in the interest of Tunisians, but also the disenfranchised throughout the region and the world.

The Tunisian people, for there part, have proven themselves to be remarkably courageous and dedicated to democratic values:

World leaders joined tens of thousands of Tunisians on Sunday to march in solidarity against Islamist militants, a day after security forces killed members of a group blamed for a deadly museum attack.

“We have shown we are a democratic people, Tunisians are moderate, and there is no room for terrorists here,” said one of the demonstrators, Kamel Saad. “Today everyone is with us.”

“The Tunisian people will not bow,” President Beji Caid Essebsi said in a speech after the march. “We will stay united against terrorism until we wipe out this phenomenon.”

Tunisia’s leaders have passed every test of their commitment to democracy. They have transferred power peacefully and enshrined their dedication to liberal and pluralistic democracy in a new constitution. I am confident that the international community, understanding both the ethical and symbolic implications of Tunisia’s democratic success, will provide assistance as necessary.

But in the wake of these terrorist attacks, a new test to democratic values has emerged–preserving the rights of the accused:

Tunisian security forces have arrested 23 more suspected Islamist militants as part of a crackdown after last month’s Bardo museum attack in which two gunmen killed 21 foreign tourists, the interior ministry said on Friday.

The attackers gunned down foreign tourists visiting the national museum in Tunis, in one of the worst attacks in the country, which has mostly avoided violence since its 2011 uprising against autocrat Zine El-Abidine Ben Ali.

The interior ministry said in a statement that the 23 new suspects belonged to two terrorist cells. It said that so far 46 suspects have been arrested since the Bardo massacre.

“Members of these terrorist cells will be charged of being accomplices in the terrorist incident (Bardo attack) through providing weapons and logistics help,” the statement said.

I do not pretend to know the evidence against those arrested as accomplices–it is possible that all of the 46 suspects indeed are guilty of being accomplices to this heinous attack. But it is imperative that due legal processes are followed, and that trials are conducted in an open and transparent way.

People are angry, and rightfully so, but convicting people to placate public anger would be a misstep for Tunisia’s budding democracy. Tunisia’s government should resist urges to try all the defendants jointly (except when a joint trial is objectively prudent), and let the facts of the case determine the outcome.

Effective democratic governance is not only about majority rule, it is also about pluralism, personal rights, judicial transparency, due process and rule of law. Tunisia must show peaceful Muslim’s that there is a place for them in Tunisian society, that they won’t be unjustly punished because of their beliefs. Failure to do so would be counter-productive, pushing Muslims into extremists arms, resulting in greater future instability.

Tunisia’s leaders must stand behind democratic principles; the world–both those rooting for against Tunisian democracy–is watching. While Tunisia’s leaders have given us no reason to think they won’t rise to the challenge, the emotional nature of this situation raises some concerns. Enlisting help from UNDP Tunisia might not be a bad idea.

The Tunisian people, who have been unwavering democratic watchdogs throughout the Arab Spring, must remember the big picture and demand their government ensures fair trials for the accused.


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Economic Outlook: The High Cost(S) of Being Poor

I have previously written about different poverty traps in America, including our outdated criminal justice system (the “prisoner paradox”) and the developmental impacts of stress passed from mother to child. If these poverty traps seemed a bit abstract, consider a more traditional poverty trap–poor people shut out of traditional credit markets and relying on “payday” loans:

The Consumer Financial Protection Bureau, the agency created at President Obama’s urging in the aftermath of the financial crisis, took its most aggressive step yet on behalf of consumers on Thursday, proposing regulations to rein in short-term payday loans that often have interest rates of 400 percent or more.

“We are taking an important step toward ending the debt traps that are so pervasive in both the short-term and longer-term credit markets,” Richard Cordray, the director of the Consumer Financial Protection Bureau, said in a statement on Thursday.

The borrowing patterns speak to a stark reality underpinning the roughly $46 billion payday loan industry: The working poor in America, a group with virtually no savings and little access to traditional bank loans, borrow to cover basic expenses.

In drafting the rules, according to interviews with people briefed on the matter, the Consumer Financial Protection Bureau, and its director, Mr. Cordray, wrestled with how to protect some of the most vulnerable consumers, without choking off credit entirely.

Driving the proposal was an analysis of 15 million payday loans by the consumer bureau that found that few people who have tapped short-term loans can repay them. Borrowers took out a median of 10 loans during a 12-month span, the bureau said. More than 80 percent of loans were rolled over or renewed within a two-week period.

Nearly 70 percent of borrowers use the loans, tied to their next paycheck, to pay for basic expenses, not one-time emergencies — as some within the payday lending industry have claimed.

Until now, payday lending has largely been regulated by the states. The Consumer Financial Protection Bureau’s foray into the regulation has incited concerns among consumer advocates and some state regulators who fear that payday lenders will seize on the federal rules to water down tougher state restrictions. Fifteen states including New York, where the loans are capped at 16 percent, effectively ban the loans.

Martin Wegbreit, a legal aid lawyer in Virginia, called payday loans “toxic,” noting that “they are the leading cause of bankruptcy right behind medical and credit card debt.”

The current economic model of low minimum wages and high payday loan fees drives people into poverty, triggering welfare payments. The U.S. government is basically transferring welfare funds to the payday loan industry.

Proposed CFPB regulations don’t go far enough, a maximum cap on loan repayments is needed. There is room for generous profit margins to compensate for the risk of lending to low income individuals without creating a “debt-trap”.

The stress and time dedicated to satisfying debt collectors amplifies the cost of being poor. Surely it would be more effective to provide access to credit, instead of wringing societies least financially secure through the payday loan system. Perhaps more money would be spent on its intended purposes, instead of paying off predatory loans.

Part of the solution could be using Post Offices as low cost banks for the poor. Sure there would be costs associated with effectively providing financial services, but the physical infrastructure and a trustworthy brand already exist. Furthermore, such a plan would provide renewed social value to an American Institution constantly under budgetary scrutiny.

Postal Banks would inject competition into the credit market, leading to better services at more competitive rates. Even if Post Office banks operated at a loss (say, giving preferential rates to low income borrowers for certain purposes), this loss may be more than offset by reduced spending on entitlement programs. More research on the cross-section between welfare recipients and payday loan borrowers is needed.

It is not a question of which of these poverty traps exists–they all exist and for some people are mutually reinforcing. This is one of the reasons social mobility is such a difficult  issue to address. Countering these different reinforcing poverty traps require the right mix of regulation, fiscal policy (progressive taxation, adequate spending on welfare programs and public services), and livable minimum wages.

In the end, lower income Americans need to overcome negative perceptions of government and vote in large numbers. Again the time crunch associated with poverty rears its ugly head; voting isn’t just a decision to go to the polls, it is also a time commitment that many cannot afford.