Archive for July, 2010

Delicious Coffee, Doused Hopes

Saturday, July 10th, 2010

The goal to “halve global poverty by 2015,” along with a slew of equally zealous objectives encapsulated in the UN’s Millenium Development Goals seem more forlorn now than ever before.

Mounting global unrest, becoming ever more conspicuous as different interest groups rally in the streets to protest international institutions like the WTO, have caused policymakers to bring the issue of poverty reduction to the fore.

It is glaringly obvious that the rules of global governance are skewed heavily in favor of developed countries. Global civil unrest continues to grow, and yet the winds of change have yet to show even the slightest breeze.

What keeps the winds of change at bay?

Perhaps Jeffrey Sachs, professor at Columbia University and the man behind the MDG’s, has an answer. In his book “The End of Poverty” Professor Sachs eloquently depicts the unfathomable ills globalization has caused to many living in the “Third World.” In particular, Sachs shows how the juggernaut character of corporate globalization has eroded both the economic independence and cultural spheres of many living in less developed regions.

Coffee, a drink that rose to prominence thanks to Islamic traders, is now one particular commodity that underscores exactly how faintly reminiscent of colonialism modern-day policies are.

As Ryuichiro Usui, a former professor at The University of Tokyo notes in his essay “Coffee and Globalization,”

“coffee, a world commodity which ranks number two in world trade after oil, demonstrates quite well what globalization is about [...] suppose 500 grams of coffee sold at a German supermarket costs four euros [...] of the four euros, only about 0.8 goes to the producer of the coffee. In contrast, 1.0 euros will go to the German government. It’s strange that the country that produces the coffee gets less than the country that consumes it, but that’s how the world market works.”

It is strange indeed, but provides a good case in point. Zimbabwe, other African countries, and many Latin American countries voice their grievances against modern global governance because all of these countries have the ability to be independent if they were only given the ability to export their goods to the global market on fairer terms.

Professor Usui cleverly Christens today’s globalizations as “grotesqualization,” and by this he means that “the global and the local are collapsed together in such a way that colonialism and postcolonialism, the premodern and the postmodern, have been blended horribly together.”

There is, however, one country that has managed to rise above modern-day globalization’s influence: Bangladesh. A country that has shown strong economic growth, Bangladesh is also a country that’s on a firm course to be able to actually realize the goal of halving poverty by 2015.

Here’s the real catch: it’s economic growth and domestic system of wealth distribution didn’t arise from the paternalistic guidance of developed countries.

Rather, the goal was attained by allowing local villagers to bring their commodities to the market and be able to sell their commodities under fair terms. In particular, banks that issued microcredit loans to the poor, like Grameen bank, empowered these individuals with the ability to become entrepreneurs.

Muhammad Yunus, an economist who studied at Vanderbilt University and who is also the founder of Grameen bank, has shown the world that it doesn’t take an MBA to be a successful entrepreneur.

With better trading practices and fairer trading terms, more countries can enjoy newly created wealth and enjoy better standards of living. Now is not the time to increase the amount of money we dole out through the form of ODA’s, now is the time to revamp a system that is heavily beneficial to some, and largely detrimental to many.


Lee Kuan Yew, Abstraction, and the Limits to Human Knowledge

Saturday, July 3rd, 2010

1997—Amid cheers, wails, toasts, tears, triumphs, and treachery, the financial battle between Thailand’s government and the world’s hedge funds had been settled.

The hedge funds had won. As their managers and clients toasted to newfound wealth, Thailand and much of Asia was sent reeling into one of the worst economic recessions of the century.

Stanley Fischer of the International Monetary Fund was one man amongst many who watched the chaos unfold. As he recalls, “I went to Bangkok in 1997 […] Thailand had fixed the value of its currency in dollars [and] people began to wonder ‘do they really have enough dollars to always be able to give me dollars in exchange for the baht, the Thai currency I have?,’ and when they begin to wonder about that, they start asking for the dollars, and then they attack the currency.”

And attack the Thai currency they did. The method? Shorting—an investing practice of “selling” something you don’t have and promising to buy the original amount later. People shorted the Thai baht in large droves, testing the Thai government’s limits. Investors all across the world who shorted the Thai baht placed a bet that the Thai government wouldn’t have enough foreign reserves to keep the baht pegged to the dollar.

Overwhelmed, the Thai government was forced to unpeg the baht. Investors, who could now “buy back” the baht at a steep discount, made millions. To use Thomas Friedman’s words, the “electronic herd” had pounced upon the baht mercilessly.

But the story didn’t end there. The collapse of Thailand’s economy—a very small portion of the global economy—made perky investors wary of neighboring countries. If Thailand’s currency was destabilized, what about all the other South-East Asian countries?

As Lee Kuan Yew, the senior minister of Singapore lamented, “the fund managers didn’t know the difference between Indonesia and Malaysia, Thailand, Singapore. They just said, ‘I want out.’ Property prices collapsed; companies collapsed. And in the case of Indonesia, the social fabric collapsed. Churches have been burnt; mosques have been attacked; they have killed each other. This will take years to heal.”

What began as a scheme by investors to create a rupture in market stability and earn easy money triggered a regional phenomenon. Millions of people in Asia saw their livelihoods change for the worse.

It would be easy to say that this episode is just another example of investors’ greed and seemingly mechanical lack of empathy.  But as Lee Kuan Yew so perceptively saw, there’s more to the story. To investors, “South East Asia” wasn’t a cartographic area demarcating an area brimming with a variety of different dialects and distinct cultures.  In their eyes it was a homogenous bloc—a lump of countries of little notable differences—and when Thailand went sour, they were quick to assume that others would too.

What’s particularly frightening about the Asian financial crisis is the limit of human knowledge. No matter how cautious investors are, they must accept some level of abstraction because it’s impossible to know everything about a particular country. In fact, from an epistemological perspective, people make abstractions every day for the sake of molding their knowledge into something that’s easy to organize and understand.

As many economists and politicians are already aware, the 21st century will see a rise in Asia’s growing importance in the world. Thus it is more important now than ever before to realize the differences between each country, each region, prefecture, city, town, and village—no matter how daunting the task may be—lest we dare trigger a catastrophe of even greater proportions.

Japan is no anomaly in the matter. Eisuke Sakakibara, commonly known as “Mr.Yen” notes: “one sector of the Japanese economy is an export-oriented sector which is highly competitive, consisting of Toyota’s and Sony’s. And the other is [the] domestic manufacturing sector which is extremely uncompetitive. We have a market-oriented capitalistic system on one hand; we have a very socialistic, egalitarian sector on the other.”

While most of the world only knows the former aspect of Japan, it is precisely the latter that has derailed Japan from its phenomenal growth in the 80’s and continues to be a nagging problem today. Japan is still an industrial giant, but at the same time it also has highly inefficient domestic industries. Both are part of Japan, but eventually Japan will have to pick one course over the other. This is one particular kind of diversity that Japan cannot afford to harbor for long.