Category Archives: Brazil

Twilight for social democracy

Ironically, at a time when American politicians are flirting with social democratic concepts, their historic parties are fading in Western Europe where those political slogans originated.
The prime example is Spain. There the PSOE [Partido Socialista Obrero Español], the Party of the Spanish Worker, the country’s oldest, has weathered many crises. During the 40-year-long Franco dictatorship, it maintained its role as the principal anti-Communist left opposition operating among refugees in France.
After governing in Madrid 21 of the last 39 years, the PSOE will probably lose its commanding position in this month’s elections, even losing role as leader of Spain’s left where the majority of the voters self-identify. Shorn of their old Soviet attachment and command structure, a revolutionary movement on the left, Podemos, and a right of center party, are likely to reduce the PSOE to less than 20% of the vote. Spanish political theory is highly influential throughout the whole Ibero-American world, and Latin American styles are almost certain to follow – as already demonstrated in Brazil, Argentina, Peru, and soon in Venezuela, where left-wing regimes are being ousted.
The loss of popularity of the social democrats in Spain echoes throughout Western Europe where for more than a half century they have played a dominant role. In Germany, the original home of social democratic concepts, the socialists are polling new lows. The ruling French Socialists have become increasingly unpopular under their Pres. François Holland, in part because he has adopted a program of economic and labor reforms ignoring traditional socialist nostrums.
In the early 90s, Italy’ socialists – in the early postwar years with a Soviet line by far the largest party, an ally of the Communists — under their first prime minister, Bettino Craxi, was almost wiped out by corruption. Three Socialist deputies committed suicide as a result of the scandals. Splinters of the early socialist parties, from anti-Communist to those fellow-traveling in the Soviet era, have joined forces forming the Socialist Party (PS), renamed Italian Socialist Party (PSI) in 2011. But many former social democrats have deserted the socialists for four-time Prime Minister Silvio Berlusconi’s bigger tent, largely a right-of-center grouping.
Europe’s social democrats have become discredited through their growing association with the policies of the moderate right — austerity, deregulation, liberalization and free trade. Virtually the whole technocratic community has seen these as necessary economic measures to restore prosperity. These have been increasingly seen by the media and among many younger politicians as the cause of Europe’s present economic decline.
But as voters of the traditional left have grown bitter as they saw their party of the welfare state, the public sector and of the blue-collar workers, reverse its governing strategy. That feeds a growing separation between social democratic politicians who view these policies as the only options as jobs have disappeared and economies flattened and the street, always ready to find leaders for protest and violence..
In Spain, an inconclusive general election last December left the socialists in a dilemma: either adopt the centre-right promises of tax cuts and more supply-side reforms, or bend to a new left that calls for an end to austerity and channels the anger of the mob.. In the U.K., this dilemma has produced a new leftwing leadership in the Labor Party, But whether, even with the conservatives in disarray over the question of withdrawal from the European Union, they have a formula to gain power is dubious.
It seems unlikely that this paradox won’t be present for the European socialist movement for the indefinite future. Whether it has application to the American scene – current political fashions to the contrary – seems highly unlikely. The U.S. economy, while not roaring forward, still is the envy of most of the Western world, with few calls even from the “progressives” for the nationalization and “socialization” of the major industries.


Viva Mexico Libre!

The news that Mexico is moving one more step to break the monopoly of Petróleos Mexicanos [Pemex], the government-owned producer and until now monopoly retailer, is big and good news.
With the world’s tenth largest economy, Mexican growth at between four and five percent over the past few years is considered well below its potential. The World Bank reckons less than 2% of Mexico’s population lives below the international poverty line but the Mexican government estimates a third of its population in moderate poverty and some ten percent of that in extreme poverty.
Competing with Brazil as Latin America’s largest economy, the country has vast disparities of income, including between those more prosperous states bordering the U.S. Mexico City and the south. Growing remittances, largely from the U.S.’ southwest, are an important part of the country’s income, more than $22 billion in 2012. But all this produces tax revenues of less than 20 percent of GDP [2013], the lowest among the 34 OECD countries.
Although Mexico is the sixth largest oil producer in the world, its exports have fallen from just under 62% of total exports in 1980 to just over 7% in 2000. Most observers agree this is a result of the inefficient monopoly over its oil resources and distribution by Pemex which has neither the capital – even though it provides more than 60% of government revenues – nor the technology to expand to meet domestic and foreign demand. But long the holy of holies for Mexico’s left, opening it up to competition and collaboration with foreign oil companies has been fought at every step since the 2014 decision was made to privatize at least some aspects of the monopoly.
Now the government has announced it will allow private companies to import gasoline for the first time since the late 1930s. That will permit the country’s independently owned 11,400 filling stations now all bound to Pemex franchises to link with other companies. The government had already permitted Pemex to form joint ventures with foreign companies to explore for more oil and increase production. But that may be years away given the bureaucracy and the long neglected technological aspects of the company.
Opening service stations to other franchises is going to be the most visible aspect of the new more liberal strategy and, hopefully, encourage faster development of the whole process. London-based Gulf Oil International already has plans to slap its Gulf de Mexico brand on a few stations in the largest cities, to expand to a wide scale national network. Motorists will be enthusiastic because of the poor service of most Pemex stations including shortchanging customers according to widespread convictions by Mexico’s consumer-protection agency.
Still, it is going to be a slow process. Mexico already imports more than half of its daily consumption of gasoline from the U.S. because the country has only six refineries. Pemex controls virtually all of the oil and gas infrastructure — pipelines and storage facilities — and the government is encouraging investors to expand the infrastructure to supply the newly freed stations. .
With trade running at well over $530 billion in 2015, the U.S.’ number three trading partner, American have a special interest in seeing more rapid liberalization and growth of the Mexican economy. Mexico, whose free trade pact with the U.S. produced a trade surplus of nearly $60 billion last year can afford to see an increase of U.S. imports – along with an accompanying investment and technology transfer for what has become its dormant oil industry. Hopefully, the Obama Administration will be pushing these developments ahead of its curious interest in the Cuban Communist dictatorship.

A vicious circle tightens

The globalized economy’s undertow is ripping all around the world.

Even the economic optimists’ two darlings, China and India, are now troubled. Seen as the world’s growth machine [along with a now overheated Brazil] in a period of advanced economies’ stagnation, their downturn produces a universally grim world outlook.

India, now the world’s largest population, had promise to overtake

China – perhaps more stable with its veteran private sector and representative government. But inflation threatens with food almost half its consumer index rising to more than 9 percent last month. Prime Minister Manmoham Singh, after all a graduate of Soviet-style Indian planning, has his foot on the brake and gas pedal at the same time. Reserve Bank of India rates force lending for preferred firms to 13 percent and notorious paper-shuffling babus [clerks] hobble initiative, sending Indian coal companies, for example, despite some of the world’s largest reserves, chasing projects from Australia to North America. A spate of influence peddling scandals, including $16-billion in telecommunications, further clouds the scene.

New Delhi’s geopolitical rival, China, has turned its back on its 25-year strategy to prevent destabilization of one-party dictatorship with maximum growth. With incipient inflation, Communist leadership enters a generational succession next year trimming its investment-led behemoth’s sails. Widespread civil violence – despite enormous expenditures for the most elaborate hi-tech suppression machine in the history of authoritarianism – jeopardizes any new tactics. In fact, all the Chinese boom’s contradictory chickens simultaneously are coming home to roost: vast overexpansion of infrastructure feeding the boom [along with subsidized exports] has produced marvels for photographers but a real estate bubble including, literally, empty new cities. There’s growing resentment over second class citizenship and lack of services among more than 200 million migrant labor from rural areas stampeded to coastal cities employment. Declining foreign markets, roaring imported commodity prices [ironically brought on in part by speculation on “unlimited” Chinese demand], wage pressure, competition from export-led cheap-wage producers, monumental corruption, all now threaten “the Chinese model”. Consumption continues to decline as a percentage of domestic product mocking talk of redirecting a growth strategy. A combination of nonconvertibility and hot money chasing an undervalued yuan demonstrates how empty talk of it as an international reserve currency is. Beijing’s capacity for foot in mouth disease is epitomized in its increasing hoard of dollars and Treasury debt [again on the upswing] while officials continuously publicly denigrate the dollar.

So much for “the emerging markets”.

Turning to the developed world, there, too, crises are escalating.

A bureaucratic hassle over the Euro with divergent views in Berlin, Paris, Brussels and Frankfurt is turning into a dragged out effort to save the 17 European Union members’ common currency. Meanwhile other integration efforts — a free labor market and common defense and foreign policy — are faltering. A Greek default could produce a European banking crisis [even contagion for North America]. In other words, a fiscal and monetary crisis is turning into a major political upheaval threatening accepted European patterns. Half-baked intervention in Libya, dragging in NATO and the U.S., was announced in idealistic terms by Europe’s leaders. But it encapsulates European concerns – unlike the increasingly hot American debate over Obama Administration’s opting for “a war of choice”. For Europe “Libya” is linked directly to falling birthrates and need for imported labor and unemployed North African, Middle Eastern and Black African youth almost literally swimming the Mediterranean at a time Muslim immigrant assimilation is increasingly questioned.

Europe faces, too, the fact the world’s window to the U.S. consumer maw which supplied the post-World War II economy not only with unlimited markets but revolutionary technology has a “closed for repairs” sign with no reopening time indicated. Whatever happens after decades of drunken sailor’s spending, there will be no substantial U.S. economic strategy in place until after November 2012. Current Washington debate, if it can be dignified with that title, over raising the debt limit and reducing government spending, is simply a foretaste of the pain necessary to get the U.S. economy – perhaps now sliding into a double-dip recession — back to its historic miraculous production of jobs and expanding markets.

It’s going to be a long hot summer and a grim fall — despite the American sideshow of political shenanigans with the curtain only temporarily coming down on the first [Weiner] scene.


The [almost] silent great debate

In a world taken up with wars, terrorism, earthquakes, tsunami, radiation, and rising food prices [and possible famine in North Korea], there’s a quiet fundamental debate. Not many people are participating. In part that’s because nowadays it quickly aborts into esoteric econometrics and philosophical gobbledygook only academics pretend to understand.
Ironically it is so common to every day life it can largely be ignored. However it is fundamental to all daily political, economic and most social decision-making. Its history goes back at least to the 18th century and the beginning of the West’s industrial revolution – and, of course, 200 years earlier with the Protestant Reformation.
Simply stated, the question is how far can life’s events be controlled by human ingenuity?
The financial crisis of 2007-8 has been interpreted in some quarters as requiring rewriting the rules of the road, domestically and around the world. Others saw it as an inevitable revisit of the business cycle – if a more severe manifestation – inherent in a relatively free system producing enormous progress but by its nature implicit with risk.
That “the Washington consensus” – free markets, representative government and human rights – is moribund has been proclaimed far and wide as fall-out from the crisis. [In some benighted quarters the suggestion comes to replace it with “the China model” – state crony capitalism enforced by political repression.]
A garland was laid on the libertarian bier in early April when the International Monetary Fund [IMF] reversed course and blessed national capital controls. In part, it reflects newer players asserting themselves as rapidly growing members of the world economic club. It reinforces their current efforts to cope with the inflow of “hot money” and “the temptation” of foreign direct and indirect investment.
As always politics intrude: IMF chief Dominique Strauss-Kahn, coyly flirts with running next spring as French Socialist presidential candidate against incumbent conservative Nicolas Sarkozy. [His wife, journalist Anne Sinclair, hints he will — perhaps following an earlier ugly IMF sexual harassment scandal.] His annual meeting eve speech advocating “globalization with a more human face” could be seen as the flip side of a just issued French Socialist Party manifesto emphasizing investment. The Socialists, turning their back on traditional French xenophobia, woo foreign money. [That scene, too, gets more complicated with the growing popularity of Jean-Marie Le Pen’s old rightwing party given “a more human face” by his charismatic daughter.]
Earlier, former Fed Chairman Allan Greenspan, seen by some as the villain in the crisis, laid out the current U.S. argument. He detailed how recent Obama-Dodd-Frank efforts to slap new controls on Wall St. had already gone awry. Greenspan summed up: “The problem is that regulators, and for that matter everyone else, can never get more than a glimpse at the internal workings of the simplest of modern financial systems.” Rep Barney Frank, left holding the legislative bag while his former collaborator Sen. Christopher Dodd snuggles into Washington’s most plush lobbying sinecure as Hollywood’s representative, responds: transactions can be vetted by the very digital revolution making them possible in the first place.
Ah! But neither grabs the crux. Any examination of what the Chicken Littles originally thought was world economic collapse traces back to government intervention, not absence of regulation. It was Congressional insistence – originally reluctantly opposed by banks until they saw the green of Fannie Mae and Freddy Mac’s unlimited government backing – to disregard traditional mortgage lending. And Lehman Brothers’ piquancy for Washington hand-me-down bureaucrats to direct its affairs, rather than old fashion merchant bankers, played a role in its demise tripping the international financial debacle.
Brazil, one of the chief beneficiaries of this past era, faces the issue ahead of others. It’s just announced a second round of capital controls, now indirectly endorsed by the new IMF dictum. Squeezing off inflows to stem its rising Real prices of commodity exports [a large part to China] may simply be encouraging the savage rape by [subsidized Chinese] imports of what has been until now its rapidly growing world class manufacturing by denying it capital access.
Greenspan’s parting shot sums up this essence for Brazil and the rest of us: Given the greatest growth in world [and U.S.] history during a period of relatively laissez-faire capitalism, are we now willing to risk its regeneration by increasing government interference?