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jeffrey sachs
How to End Global Financial Apartheid
The poorer countries are demanding an end to a world dominated by the rich—as well they should.
May 09, 2023
The key to economic development and ending poverty is investment. Nations achieve prosperity by investing in four priorities. Most important is investing in people, through quality education and health care. The next is infrastructure, such as electricity, safe water, digital networks, and public transport. The third is natural capital, protecting nature. The fourth is business investment. The key is finance: mobilizing the funds to invest at the scale and speed required.
In principle, the world should operate as an interconnected system. The rich countries, with high levels of education, healthcare, infrastructure, and business capital, should supply ample finance to the poor countries, which must urgently build up their human, infrastructure, natural, and business capital. Money should flow from rich to poor countries. As the emerging market countries became richer, profits and interest would flow back to rich countries as returns on their investments.
That’s a win-win proposition. Both rich and poor countries benefit. Poor countries become richer; rich countries earn higher returns than they would if they invested only in their own economies.
Strangely, international finance doesn’t work that way. Rich countries invest mainly in rich economies. Poorer countries get only a trickle of funds, not enough to lift out of poverty. The poorest half of the world (low-income and lower-middle-income countries) currently produces around $10 trillion a year, while the richest half of the world (high-income and upper-middle-income countries) produces around $90 trillion. Financing from the richer half to the poorer half should be perhaps $2-3 trillion year. In fact, it’s a small fraction of that.
The problem is that investing in poorer countries seems too risky. This is true if we look at the short run. Suppose that the government of a low-income country wants to borrow to fund public education. The economic returns to education are very high, but need 20-30 years to realize, as today’s children progress through 12-16 years of schooling and only then enter the labor market. Yet loans are often for only 5 years, and are denominated in US dollars rather than the national currency.
Suppose the country borrows $2 billion today, due in five years. That’s okay if in 5 years, the government can refinance the $2 billion with yet another five-year loan. With five refinance loans, each for five years, debt repayments are delayed for 30 years, by which time the economy will have grown sufficiently to repay the debt without another loan.
Yet, at some point along the way, the country will likely find it difficult to refinance the debt. Perhaps a pandemic, or Wall Street banking crisis, or election uncertainty will scare investors. When the country tries to refinance the $2 billion, it finds itself shut out from the financial market. Without enough dollars at hand, and no new loan, it defaults, and lands in the IMF emergency room.
Like most emergency rooms, what ensues is not pleasant to behold. The government slashes public spending, incurs social unrest, and faces prolonged negotiations with foreign creditors. In short, the country is plunged into a deep financial, economic, and social crisis.
Knowing this in advance, credit-rating agencies like Moody’s and S&P Global give the countries a low credit score, below “investment grade.” As a result, poorer countries are unable to borrow long term. Governments need to invest for the long term, but short-term loans push governments to short-term thinking and investing.
Poor countries also pay very high interest rates. While the US government pays less than 4 percent per year on 30-year borrowing, the government of a poor country often pays more than 10 percent on 5-year loans.
The IMF, for its part, advises the governments of poorer countries not to borrow very much. In effect, the IMF tells the government: better to forgo education (or electricity, or safe water, or paved roads) to avoid a future debt crisis. That’s tragic advice! It results in a poverty trap, rather than an escape from poverty.
The situation has become intolerable. The poorer half of the world is being told by the richer half: decarbonize your energy system; guarantee universal healthcare, education, and access to digital services; protect your rainforests; ensure safe water and sanitation; and more. And yet they are somehow to do all of this with a trickle of 5-year loans at 10 percent interest!
The problem isn’t with the global goals. These are within reach, but only if the investment flows are high enough. The problem is the lack of global solidarity. Poorer nations need 30-year loans at 4 percent, not 5-year loans at more than 10 percent, and they need much more financing.
Put more simply, the poorer countries are demanding an end to global financial apartheid.
There are two key ways to accomplish this. The first way is to expand roughly fivefold the financing by the World Bank and the regional development banks (such as the African Development Bank). Those banks can borrow at 30 years and around 4 percent, and on-lend to poorer countries on those favorable terms. Yet their operations are too small. For the banks to scale-up, the G20 countries (including the US, China, and EU) need to put a lot more capital into those multilateral banks.
The second way is to fix the credit-rating system, the IMF’s debt advice, and the financial management systems of the borrowing countries. The system needs to be reoriented towards long-term sustainable development. If poorer countries are enabled to borrow for 30 years, rather than 5 years, they won’t face financial crises in the meantime. With the right kind of long-term borrowing strategy, backed up by more accurate credit ratings and better IMF advice, the poorer countries will access much higher flows on much more favorable terms.
The major countries will have four meetings on global finance this year: in Paris in June, Delhi in September, the UN in September, and Dubai in November. If the big countries work together, they can solve this. That’s their real job, rather than fighting endless, destructive, and disastrous wars.
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Ukraine Is the Latest Neocon Disaster
The main message of the neocons is that the US must predominate in military power in every region of the world, and must confront rising regional powers that could someday challenge US global or regional dominance, most important Russia and China.
Jun 28, 2022
The war in Ukraine is the culmination of a 30-year project of the American neoconservative movement. The Biden Administration is packed with the same neocons who championed the US wars of choice in Serbia (1999), Afghanistan (2001), Iraq (2003), Syria (2011), Libya (2011), and who did so much to provoke Russia's invasion of Ukraine. The neocon track record is one of unmitigated disaster, yet Biden has staffed his team with neocons. As a result, Biden is steering Ukraine, the US, and the European Union towards yet another geopolitical debacle. If Europe has any insight, it will separate itself from these US foreign policy debacles.
The neocon outlook is based on an overriding false premise: that the US military, financial, technological, and economic superiority enables it to dictate terms in all regions of the world.
The neocon movement emerged in the 1970s around a group of public intellectuals, several of whom were influenced by University of Chicago political scientist Leo Strauss and Yale University classicist Donald Kagan. Neocon leaders included Norman Podhoretz, Irving Kristol, Paul Wolfowitz, Robert Kagan (son of Donald), Frederick Kagan (son of Donald), Victoria Nuland (wife of Robert), Elliott Cohen, Elliott Abrams, and Kimberley Allen Kagan (wife of Frederick).
The main message of the neocons is that the US must predominate in military power in every region of the world, and must confront rising regional powers that could someday challenge US global or regional dominance, most important Russia and China. For this purpose, US military force should be pre-positioned in hundreds of military bases around the world and the US should be prepared to lead wars of choice as necessary. The United Nations is to be used by the US only when useful for US purposes.
This approach was spelled out first by Paul Wolfowitz in his draft Defense Policy Guidance (DPG) written for the Department of Defense in 2002. The draft called for extending the US-led security network to the Central and Eastern Europe despite the explicit promise by German Foreign Minister Hans-Dietrich Genscher in 1990 that German unification would not be followed by NATO's eastward enlargement. Wolfowitz also made the case for American wars of choice, defending America's right to act independently, even alone, in response to crises of concern to the US. According to General Wesley Clark, Wolfowitz already made clear to Clark in May 1991 that the US would lead regime-change operations in Iraq, Syria, and other former Soviet allies.
The neocons championed NATO enlargement to Ukraine even before that became official US policy under George W. Bush, Jr. in 2008. They viewed Ukraine's NATO membership as key to US regional and global dominance. Robert Kagan spelled out the neocon case for NATO enlargement in April 2006:
[T]he Russians and Chinese see nothing natural in [the "color revolutions" of the former Soviet Union], only Western-backed coups designed to advance Western influence in strategically vital parts of the world. Are they so wrong? Might not the successful liberalization of Ukraine, urged and supported by the Western democracies, be but the prelude to the incorporation of that nation into NATO and the European Union--in short, the expansion of Western liberal hegemony?
Kagan acknowledged the dire implication of NATO enlargement. He quotes one expert as saying, "the Kremlin is getting ready for the 'battle for Ukraine' in all seriousness." The neocons sought this battle. After the fall of the Soviet Union, both the US and Russia should have sought a neutral Ukraine, as a prudent buffer and safety valve. Instead, the neocons wanted US "hegemony" while the Russians took up the battle partly in defense and partly out of their own imperial pretentions as well. Shades of the Crimean War (1853-6), when Britain and France sought to weaken Russia in the Black Sea following Russian pressures on the Ottoman empire.
Kagan penned the article as a private citizen while his wife Victoria Nuland was the US Ambassador to NATO under George W. Bush, Jr. Nuland has been the neocon operative par excellence. In addition to serving as Bush's Ambassador to NATO, Nuland was Barack Obama's Assistant Secretary of State for European and Eurasian Affairs during 2013-17, where she participated in the overthrow of Ukraine's pro-Russian president Viktor Yanukovych, and now serves as Biden's Undersecretary of State guiding US policy vis-a-vis the war in Ukraine.
In the "battle for Ukraine," the neocons were ready to provoke a military confrontation with Russia by expanding NATO over Russia's vehement objections because they fervently believe that Russia will be defeated by US financial sanctions and NATO weaponry.
The neocon outlook is based on an overriding false premise: that the US military, financial, technological, and economic superiority enables it to dictate terms in all regions of the world. It is a position of both remarkable hubris and remarkable disdain of evidence. Since the 1950s, the US has been stymied or defeated in nearly every regional conflict in which it has participated. Yet in the "battle for Ukraine," the neocons were ready to provoke a military confrontation with Russia by expanding NATO over Russia's vehement objections because they fervently believe that Russia will be defeated by US financial sanctions and NATO weaponry.
The Institute for the Study of War (ISW), a neocon think-tank led by Kimberley Allen Kagan (and backed by a who's who of defense contractors such as General Dynamics and Raytheon), continues to promise a Ukrainian victory. Regarding Russia's advances, the ISW offered a typical comment: "[R]egardless of which side holds the city [of Sievierodonetsk], the Russian offensive at the operational and strategic levels will probably have culminated, giving Ukraine the chance to restart its operational-level counteroffensives to push Russian forces back."
The facts on the ground, however, suggest otherwise. The West's economic sanctions have had little adverse impact on Russia, while their "boomerang" effect on the rest of the world has been large. Moreover, the US capacity to resupply Ukraine with ammunition and weaponry is seriously hamstrung by America's limited production capacity and broken supply chains. Russia's industrial capacity of course dwarfs that of Ukraine's. Russia's GDP was roughly 10X that of Ukraine before war, and Ukraine has now lost much of its industrial capacity in the war.
The most likely outcome of the current fighting is that Russia will conquer a large swath of Ukraine, perhaps leaving Ukraine landlocked or nearly so. Frustration will rise in Europe and the US with the military losses and the stagflationary consequences of war and sanctions. The knock-on effects could be devastating, if a right-wing demagogue in the US rises to power (or in the case of Trump, returns to power) promising to restore America's faded military glory through dangerous escalation.
Instead of risking this disaster, the real solution is to end the neocon fantasies of the past 30 years and for Ukraine and Russia to return to the negotiating table, with NATO committing to end its commitment to the eastward enlargement to Ukraine and Georgia in return for a viable peace that respects and protects Ukraine's sovereignty and territorial integrity.
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Experts Say Long War of Attrition in Ukraine Is a Dangerous Path
"By expanding support to Ukraine across the board and shelving any diplomatic effort to stop the fighting, the United States and its allies have greatly increased the danger of an even larger conflict."
May 11, 2022
While the United States lavishes Ukraine with tens of billions of dollars in military aid as part of a stated goal of not only defending an ally against Russian invasion but also of weakening Russia itself, peace-minded voices this week warned against the existential dangers of pursuing such policy.
"The longer the war, the worse the damage to Ukraine and the greater the risk of escalation."
In a Wednesday New York Times opinion essay, journalist Tom Stevenson, who reported from Ukraine during the first weeks of the war, wrote that "at first, the Western support for Ukraine was mainly designed to defend against the invasion. It is now set on a far grander ambition: to weaken Russia itself."
"Presented as a commonsense response to Russian aggression, the shift, in fact, amounts to a significant escalation," he continued. "By expanding support to Ukraine across the board and shelving any diplomatic effort to stop the fighting, the United States and its allies have greatly increased the danger of an even larger conflict. They are taking a risk far out of step with any realistic strategic gain."
\u201cHouse passes $40 billion for Ukraine, mostly weapons that will just prolong the war and kill more people, with the support of EVERY Democrat! What happened to our anti-war members? And the Squad? https://t.co/WqfA5CrmWh\u201d— Medea Benjamin (@Medea Benjamin) 1652236563
The dangers of such policy are more than just military in nature. Writing for Project Syndicate, progressive economist Jeffrey D. Sachs said that "the adverse economic fallout from the war and sanctions regime will also reach dire proportions in dozens of developing countries that depend on food and energy imports."
"Diplomatic efforts ought to be the centerpiece of a new Ukraine strategy."
"Economic dislocations in these countries will lead to urgent calls worldwide to end the war and sanctions regime," he predicted, while noting that the International Monetary Fund "now forecasts a 35% contraction of Ukraine's economy in 2022, reflecting the brutal destruction of housing, factories, rail stock, energy storage, and transmission capacity, and other vital infrastructure."
Nevertheless, said Sachs, "the risk of nuclear war" remains "the most dangerous of all."
"If Russia's conventional forces were actually to be pushed toward defeat, as the U.S. is now seeking, Russia might well counter with tactical nuclear weapons," he warned. "A U.S. or Russian aircraft could be shot down by the other side as they scramble over the Black Sea, which in turn could lead to direct military conflict. Media reports that the U.S. has covert forces on the ground, and the U.S. intelligence community's disclosure that it helped Ukraine kill Russian generals and sink Russia's Black Sea flagship, underscore the danger."
\u201cJeff Sachs says Ukraine should negotiate based on neutrality and march borders. \n\nI think on balance he is right. \n\nhttps://t.co/BtW3RY2Iid\u201d— Jonathan Glennie (@Jonathan Glennie) 1652282058
Sachs continued:
The reality of the nuclear threat means that both sides should never forgo the possibility of negotiations. That is the central lesson of the Cuban Missile Crisis, which took place 60 years ago this coming October. President John F. Kennedy saved the world then by negotiating an end to the crisis--agreeing that the U.S. would never again invade Cuba and that the U.S. would remove its missiles from Turkey in exchange for the withdrawal of the Soviet missiles from Cuba.
That was not giving in to Soviet nuclear blackmail. That was Kennedy wisely avoiding Armageddon.
Stevenson concurs, arguing that "diplomatic efforts ought to be the centerpiece of a new Ukraine strategy."
"Instead," he lamented, "the war's boundaries are being expanded and the war itself recast as a struggle between democracy and autocracy. This is not just declamatory extravagance. It is reckless. The risks hardly need to be stated."
"The longer the war, the worse the damage to Ukraine and the greater the risk of escalation," Stevenson cautioned, adding that "indefinite protraction of the war... is too dangerous with nuclear-armed participants."
\u201cZero House Democrats \u2014 including the Squad \u2014 voted against approving another $40 billion for the Ukraine proxy war.\u201d— Aaron Mat\u00e9 (@Aaron Mat\u00e9) 1652231716
The experts' warnings came as the U.S. House of Representatives on Tuesday overwhelmingly approved $40 billion in additional aid, much of it military in nature, for Ukraine. The vote was 368-57. All the dissenting votes were Republicans.
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