Are we listening? Identities facing a deep multi-faceted global crisis (Carlos Lopes)
O texto de Carlos Lopes é importante em termos metodológicos. Parte da visão da crise como resultando da “completa confusão nos mecanismo de atribuição de valor real de mercado”, e nisto, os sub-primes foram apenas o gatilho que desencadeou a desarticulação dos “esquemas piramidais. Traz o drama dos países em desenvolvimento, sendo que apenas um quarto deles têm capacidade fiscal razoável de enfrentá-la.
A visão é keynesiana moderna, visando gastos que cumulam efeitos anticiclicos e promoção social e ambiental. As soluções vão na linha da construção de processos internacionais de colaboração, por não ser realista imaginar uma “supra-autoridade”. Indo além da crise financeira, Lopes estuda o peso da diversidade cultural e das identidades diferenciadas na construção dos processos colaborativos. A eradicação da varíola, que exigiu esforço articulado e diferenciado de todos os países do planeta, mostra o caminho. Um texto rico e inspirador.
ESTORIL CONFERENCES (2009)
Panel on “Global and local challenges from the perspective of values, identities and markets. Is globalisation manageable?”
Are we listening? Identities facing a deep multi-faceted global crisis.
We are all talking about the crisis
Perhaps, more than ever before the word crisis refers to phenomena that can be attributable to many dimensions. Still, financial vulnerability is certainly the cornerstone of the current peak. Even if we believe we are facing a new type of crisis, it is modest to acknowledge at least three main economic ingredients: macro-economic fragility, contagion effect and a concomitant trigger. [Freixas, 2009]
As macro-economic fragility spread through asset bubbles, provoked by easy access to credit and under-rated risk assessments, an excessive growth in the real estate value, particularly in the US, contributed to complete confusion in the attribution of real market value. High financial assets prices became over-exposed to a web of interbank assets and liabilities. From that situation evolved doubts about liquidity, therefore leading to contagion. The market illiquidity was sudden. Banks mutual funds and other financial vehicles drove illiquidity problem beyond the banking industry. Any institution short of cash had to fire-sell other assets, making liquidity hoarding all the more profitable. The sub-primes were only the trigger of this turmoil. It was the one element that demonstrated the fragility of the entire system. [Freixas, 2009]
The word we use to explain the mess is “deregulation”: too much of it, lack of proper rules of engagement, opacity, no proper scrutiny of assets, banks deleveraging by selling their assets, wholesale borrowings, gross exaggeration of liberalization outcomes, excessive use of monetary policies and so on.
Amartya Sen agrees. He blames the crisis on the absence of regulation in the conditions of non-transparent derivatives’ market and the tendency toward over-speculation. “The obligations and responsibilities associated with transactions have in recent years become much harder to trace thanks to the rapid development of secondary markets involving derivatives, and other financial instruments. This occurred at a time when the plentiful availability of the credit, partly driven by the huge trading surpluses of some economies, most prominently China, magnified the scale of brash operations. A subprime lender who misled a borrower into taking unwise risks could pass off the financial instruments to other parties, remote from the original transaction.” [Sen, 2009]
A friend sent me a humoristic description of how derivatives work.
A self-promoted entrepreneur opened a trendy bar in a depressed area. To increase the sales he decided to allow loyal patrons – most of whom were unemployed – to drink and pay later. The ledger with the debts worked like a loan scheme. Once word got around about the “drink-now-pay-later” marketing strategy more and more customers flood into the bar. Business went well for suppliers who noticed huge demand and propagated the story of how well the trendy bar was doing. A dynamic manager of the local bank approached the owner, realizing recent increases in the prices of beverages have not met resistance and concluded customer debts were valuable future assets. The bank offered a loan for the opening of other bars with the same marketing strategy, accepting some of the debts as collateral. Bonds were created to allow the Bank headquarters to trade these assets in the securities market. Clueless investors saw the climbing of the bonds as indication this was a good buy and pushed these bonds to the top-selling lists. Rating agencies noticed the competition between brokerage houses around the bonds and classified them high. One day a risk manager at one of the banks involved decided it was time to demand payment of the original debts. The owner of the trendy bars chain could not pay the loans and declared bankruptcy. The suppliers followed or were taken over by competitors. A massive number of people were about to be laid-off when an around the clock negotiation produced a rescue package from the Government. It injected cash into the banks to take care of what had become toxic assets.
Derivatives are very close to the more criticized pyramid schemes. They are not criminalized like the later, because government loose regulation allowed them to be accepted, and produce exuberance. But their effects are devastating.
There was such a faith in growth at any cost that economic efficiency became synonymous to success in the stock markets. Serious social inefficiencies could be downplayed. Climate change as the biggest market failure was barely acknowledged. [Stern, 2009]
Political instability and the dismantling of safety nets were seen also as the unfortunate consequences of economic efficiency.
Impact on the developing world
Almost 40 percent of developing countries are highly exposed to the poverty effects of the crisis and additional 56 percent are moderately exposed. Only one fourth of all the exposed countries have reasonable fiscal capacity and one third of them are aid dependent and will require external support to finance increased spending. The remaining three quarters of the exposed countries have limited fiscal capacity, and are in urgent need of assistance to protect poor households. A quarter of affected developing countries have limited institutional capacity to expand spending, for vulnerable groups. In these countries, it will be critical to aim investment support, and if possible, expand delivery of core services (health, education, basic public administration) and basic infrastructure and, wherever possible, to reinforce and improve access to safety net programs. [PREM, 2009]
At the beginning of the contagion it was hoped that the crisis was mostly going to affect the OECD economies. Important savings and foreign currency reserves, combined with growing demand in emerging countries, as well as South-South trade, appeared as enough cushion for emerging economies to bypass the worst of the tsunami. The US decline as a result of a long-dated structural problem – persistence of balance of payments deficit and expensive foreign debt – against the rise of China, India and Brazil, looked like a deep reorganization of the world economy.
However, there is no doubt any more, that the crisis, although less acute, will spread its wings almost everywhere. This is testimony to the enormous integration of key economic drivers such as trade, investment and technology. Expectations for Africa and significant parts of Asia and the Gulf, to remain in positive territory, do not reduce the enormous social impact.
Furthermore, the risk of an ODA decline, as it happened during previous crisis, looms large. The results of ODA for 2008 came as a surprise, ODA having increased by 10.2% or US$ 119.8 billion, a record. This figure is to be compared with the rescue of AIG alone, which accounts in excess of US$ 150 billion, so far. OECD says that 2010 aid targets will be achieved by many countries. However, only 5 countries have reached the UN’s ODA target of 7% of GDP. The OECD-DAC average continues to be quite low, at only 0.3%. Global economic recession is massively increasing the financing and emergency needs of LDCs. O.7% of the US$ 1 trillion stimulus package, announced at the G20 London meeting, would amount to US$ 70 billion, which would be quite adequate to address LDCs immediate additional needs.
Institutional space: the need to learn from history
Aid alone is far from being the solution. In the past aid has come with severe structural adjustment conditionality. The role of economic development institutions, and their diversity, is now better understood, but not necessarily mainstreamed. The “one-size-fits-all” recipes of the Washington Consensus thinkers may appear in retreat, but the designers of the rescue policies continue to believe in a perfect market model based on methodological individualism.
The struggle against the Washington Consensus is basically about institutional freedom. The need for countries to own their processes and to adjust to specific requirements. This is not by itself an ingredient of success. However it does create a more pragmatic and less ideological reading of the situations, hence influencing policy formulation.
In fact the institutional theory assigns greater importance to structure with its incentives and to institutional change and path dependence argument. Economic growth then would depend on whether incentives of the institutions are conducive to it or not: institutions are always “a mixed bag of those that induce productivity increase and those that reduce productivity”. [North, 1990]
The issues of institutional development have come to prominence during the last decade, even in the work of IMF and the World Bank, which devoted its annual report to the topic in 2002.
Chang argues that “there is no simple formula for institutional development that countries can import and neatly apply in order to promote their economic development. Functional multiplicity, the importance of informal institutions, the existence of unintended consequences and intended “perversion” of institutions all imply that importation of “best practice” formal institutions does not guarantee any particular positive outcome, even assuming that the imported institution can actually take root in the importing country”. [Chang, 2007] In fact all good experiments are a mix of imported and localized knowledge.
We are invaded by references to the 1929 crisis for, mostly, the wrong reasons: the stock market crash, resizing of assets value, government interventions through the “New Deal”, the great depression that followed. Today’s reality is quite different in the richer countries and elsewhere. As deep as this crisis may be it is unlikely that people will be queuing for bread in New York, London or Paris. Unemployment will rise but still below the numbers then. Speed of capital flows and capitalization levels makes the stock market comparison almost pathetic. Not to mention existing safety nets and global layers of integration.
What is interesting to compare with the Great depression though, are the institutional approaches adopted. The synchronization of policy measures was not obvious in the aftermath of 1929. Some, like Krugman, say that the need for cooperation to get out of the crisis is the main lesson learnt from the Great Depression. [Krugman, 2009] It may well be. However cooperation normally means cooperation amongst the key players. The Great depression produced Bretton Woods. The current crisis is so far only readjusting Bretton Woods. There are signs these adjustments are recognizing more institutional space. But it is too early to know how adequate the effort will be.
We are in this together
“International cooperation has many uses. It is a tool for altruistic purposes, importantly so, and it serves a host of geopolitical interests, certainly. But, it is also a tool for states to align their long-term, enlightened national interests to achieve common goals”. [International Task Force on GPGs, 2006]
The role of Global Public Goods, as actions and contributions that neutrally serve us all, as, often, been confronted with public skepticism and political cynicism. This is particularly true in a politically polarized world: where the capacity to negotiate extends at the same speed as the access to information. There is a need for new ideas, innovations, to overcome some of the obstacles governments confront in tackling global ills.
The system to provide national public goods cannot be replicated internationally. Sovereignty is but one of the obstacles. There is no power of compulsion that allows rules that supply national public goods to be internationalized. Since it is not realistic to imagine a supra authority, that will oblige the enforcement of such rules, the alternative is indeed international cooperation. Forms of collective volunteerism need structure, which is why there has been a history of treaties and agreements that shape international cooperation. The backbone for all of this to work has to be the existence of international organizations, based on careful incentives that shall influence individual behavior. “In the absence of a world government, international institutions have to do this with one hand tied behind their back”. [Barrett, 2007]
Recognized legitimacy of the international institutions is as important as their national equivalent. The ability to supply public goods depends a great deal on legitimacy. As the International Task Force on Global Public Goods said: all peoples are affected by changes in the environment; vulnerable to the risks from infectious disease, benefit from international systems designed to supply peace and security, trade and financial stability – and the prosperity that these allow. But how this is done is essential.
A crisis, like the current one provokes a breakdown in a number of supplied public goods. Addressing it is submitted to the same legitimacy requirements just mentioned. Krugman’s call for international cooperation has to pass this test.
Climate change is a good example
Climate change is an example of the aggregate effort for Global Public Goods: reducing the world’s greenhouse gas emissions depends on the aggregate gas emissions from all countries. Single countries have no impact without being part of a collective effort. There is a need for international cooperation, to determine individual actions required to achieve common outcomes. Industrialized countries have to be helping developing countries with financing that will allow the enforcement of treaties. Public declarations with specific promises create space for monitoring internally, as well as for an international sanction of “naming and shaming” as well as comparison to other countries’ commitments. [Barrett, 2007]
For those who argue that the turbulence in financial markets and the slowdown of the world economy should lead to the postponement of action on climate change Stern says it would be a serious mistake. A key lesson for the present financial disarray should surely be that it is dangerous to ignore, or fail to recognise, the build-up of risk. “We shall need a growth engine to take us out of the slowdown. Low-carbon energy could be a powerful driver: it is lasting and substantial; it is dynamic in its learning and global opportunities; and it is of real economic and social value”. [Stern, 2009] Stern further argues the two biggest challenges of our time are: overcoming poverty and combating climate change. “Failure to tackle one will undermine efforts to deal with the other… We confuse the issues if we try to create an artificial “horse race” between development and climate responsibility.” [Stern, 2009]
The eradication of smallpox has shown the weakest link for global public goods, as it could only be achieved with the active participation of every country. The main reason it worked is because each country had an incentive to contribute. “Indeed, it may be the best collective investment the world has ever made”. [Barrett, 2007]
The current crisis has yet to produce the incentives equivalent to such a degree of international consensus. There was scientific knowledge on how to tackle smallpox. But nobody went as far as to propose the right institutional arrangements, or national policy mix required to undertake the exercise. The legitimacy of the international cooperation was acknowledged because all had a say and the weaker were provided with the right support, in other words: incentives!
Beyond the crisis: impact on identities
Sen is critical of many communitarian thinkers that have argued that a dominant communal identity is only a matter of self-realization, not of choice. He says it is hard to believe that a person really has no choice in deciding what relative importance to attach to the various groups to which he or she belongs. It is not just a matter of discovering all of a sudden identities, as if it were a vegetal species. “If choices do exist and yet it is assumed that they are not there, the use of reasoning may well be replaced by uncritical acceptance of conformist behavior, no matter how rejectable it may be.” [Sen, 2006]
John Tomlinson suggests that “cultural identity, properly understood, is much more the product of globalization than its victim” and argues that “the impact of globalization thus becomes, more plausibly, a matter of the interplay, of an institutional technological impetus towards globality with counterpoised “localizing” forces… cultural experience is in various ways “lifted out” of its traditional “anchoring” in particular localities. One way of understanding this is to think about the places we live in as being increasingly penetrated by the connectivity of globalization… events outside our immediate localities are increasingly consequential for our experience. Modern culture is less determined by location because location is increasingly penetrated by “distance””. (Ex. TV news, exotic tastes, etc.) He sees “the emergence of “hybrid” cultural identities as a consequence both of the multicultural constitution of modern nation-states and the emergence of the transnational forms of popular culture.” [Tomlinson, 2007]
It is not surprising that the speed of new alliances, regional interests and ambitions, advances in telecommunications, powerful access to virtual knowledge, delocalizing technological expertise and biotechnology challenges, have all contributed to tensions, confusion and deep-rooted questioning of traditional forms of social capital, values and ethics.
Isolated communities are brought together not by choice but by imposition of new forms of integration they, often, don’t fully understand. For instance, as Ayton-Shenker asks, “how can human rights be reconciled with the clash of cultures that has come to characterize our time? Cultural background is one of the primary sources of identity. It is the source for a great deal of self-definition, expression, and sense of group belonging”. It is how we exercise choice, as mentioned by Sen. “As cultures interact and intermix, cultural identities change. This process can be enriching, but disorienting. The current insecurity of cultural identity reflects fundamental changes on how we define and express who we are today”. [Ayton-Shenker, 2005]
Sense of insecurity is compounded by how we relate to established power. The sense of confusion is greater when individuals discover their leaders are incapable of influencing economic policy. Individuals continue to relate to their national governments as the responsible party, more so for any of the consequences resulting from a crisis. The global dimension behind any crisis is too abstract; even for sophisticated actors, such as: politicians not in charge, media, public intellectuals or all sorts of crowd pulling celebrities. Individuals claim either obvious populist or protectionist measures, or plain nationalist solutions, contrary to the idea of international responses to international problems.
OECD countries’ leaders facing distressed electorates are short in words. The global dimension of so much trouble is not fully accepted by their constituents. A US$ 4 trillion global financial loss seems gigantic enough to absorb any national responsibility, they thought. But the message is lost. Probably for the first time, in these countries’ modern history, there is an immense realization of the limitations of the national state, even for the most powerful economy, the US, to just decide. This is not new to developing countries. But certainly it is for OECD countries. Uncertainty has been democratized.
The sense of “modesty” imposed by the crisis, has dare consequences for the way we look at the world, and how international relations will be shaped.
Multiculturalism and Cosmopolitanism explain complexity
Claude Lévy-Strauss, still alive and kicking with more than 100 years, once said:
“The true contribution of a culture consists, not in the list of inventions which it has personally produced, but in its difference from others. The sense of gratitude and respect which each single member of a given culture can and should feel towards all others can only be based on the conviction that the other cultures differ from his own in countless ways, even if the ultimate essence of these differences eludes him or if, in spite of his best efforts, he can reach no more than an imperfect understanding of them”. [Levy-Strauss, 1952]
To understand the other we need to change our understanding of one self. Multiculturalism is often resisted because it is deep; not a cork. Most of us recognize that we are enriched by understanding other human possibilities. When societies other than ours, or those we are familiar with, present disconcerting differences, we should accept they are different, but human, not errors.
In a recent book Ramo argues Western ideals must be re-evaluated as traditional foreign policy models become obsolete. The “realist school” (no friends, only interests) is too rigid; whereas the “idealist school” (democracy equals peace) is too simplistic. “Instead of starting with a view of how we want the world to be and then jamming that view into place, we start more reasonably with a picture of how the world is”. [Ramo, 2009] There is no Grand Strategy anymore! We have to face countless newness and disruptive complexity. We’d better get used to many layers of nuance imposed by multi-identities.
Anglo-Saxon tradition thought it solved the identity issue by accepting diversity and regulating it trough multiculturalism. Appiah believes multiculturalism often designates a disease it purports to cure. [Appiah, 2006] Sen is even more precise. Multiculturalism is the opposite of plural monoculturalism. The latter is expressed in a form of a federation of cultures or the tyrannical implications of putting people into rigid boxes of given communities, whereas the former, on the other hand, is an expression of cultural freedom (person’s right to choose between the modes but also priorities in his/her identities). [Sen, 2006]
Writer Maalouf has no doubts that all the modern conflicts ravaging the world since the fall of the communism are an expression of identity clashes, culminating in the so called clash of civilisations. His answer to the question of multiculturalism is that there is not a solution, contrary to the conviction shared by countries such as France or Britain who thought they have found one. In fact, the apparent clash of civilizations, focussing on a divide between the West and the Muslim world, is a clash between secular and religious forms of legitimizing power. Proponents of the religious-based forms of power stand against the challenge of their authority. Maalouf believes both civilisation archetypes -western and Arab-Muslim- are exhausted. [Maalouf, 2009]
“The west’ morbid fear of Islam served to deny Arabs democracy in case they support Islamists, just as during the Cold War many Latin Americans, Asians and Africans had to endure Western-endorsed dictators lest they supported communists… There is no endemic or intrinsic conflict between Christians and Muslims. Rather, the root of the problem is that the majority of Muslims is convinced that the West – interested only in stability based on regional strongmen, the security of Israel and cheap oil – is engaged in a war against Islam and is bent on denying them the freedoms it claims for itself”. [Gardner, 2009]
Sen says the politics of global confrontation is frequently seen as a corollary of religious and cultural divisions in the world. [Sen, 2006]
So how do we get out of the conundrum?
For Appiah the answer is cosmopolitanism. “There are two strands that intertwine in the notion of cosmopolitanism. One is the idea that we have obligations to others, obligations that stretch beyond those to whom we are related by the ties of kith and kind, or even the more formal ties of a shared citizenship. The other is that we take seriously the value not just of human life but of particular human lives, which means taking an interest in the practices and beliefs that lend them significance. People are different, the cosmopolitan knows, and there is much to learn from our differences… There is a sense in which cosmopolitanism is the name not of the solution but of the challenge”. [Appiah, 2006]
This means cosmopolitanism is not the attainment. It is about coexistence: conversation in its older meaning, of living together, association. And conversation in its modern sense, too, inter alia, between people from different ways of life. [Appiah, 2006]
In a world where 4 billion have a cellular phone, 1 billion travel a year, 175 million Face-book already, 850 million photos and 5 million videos are uploaded every month, who can stop interconnectedness? The meaning of conversation is association. We need a new understanding of what is legitimate and for the common good. The shift towards globalized access to knowledge, virtual knowledge, implies more room for fluidity between appropriators and generators of knowledge. This automatically shifts power to the individuals, calling for interactive forms of contributing knowledge, a bit like if the entire world was shifting to an open software approach.
New modes of transmission and contact are making human relation more impersonal, and, therefore, less emotional. The absolute premises about human networking continue to be the same (the regular amount of people that can be absorbed fully by an individual is still about 100), but the nature of communications, for many, is changing dramatically.
Appiah reminds us that only in the last couple of centuries, have we been drawn, gradually, into a single web of trade and a global network of information. It is no longer unrealistic to imagine contacting any other of our six billion co-species and sending that person something worth having, as well as things that can cause harm too. [Appiah, 2006]
What we are being told
The crisis has human faces, has identities, adds to the complexity. According to ILO an increase in the number of the unemployed by more than 50 million is quite possible. Some 200 million people, mostly in developing economies, could be pushed into poverty. Are these problems going to be solved with the measures adopted by the G20 London Summit? Are the announcements made a success for the Summit or for the near future?
We are invaded with bad news. Gloomy assessments by the IMF and other major institutions come at the same pace as good news and upbeat assessments did a year ago. The current hangover provokes zealous conservatism not desire for deep transformation. However, the bottom line remains the same: are the institutions from the most influential countries and actors, national or global, ready for a true paradigm shift? And what would that be?
Is the paradigm shift an enhanced version of the rationale behind the various stimulus packages: saving failures without identifying the culprits, to not disturb recovery efforts? More or less the opposite of what was recommended to trouble spots around the developing world, in previous crisis.
Do we really need a “new capitalism”? asks Sen. A capitalist banner, rather than a non-monolithic economic system that draws on a variety of institutions chosen pragmatically and values that we can defend with reason? He further asks. “Should we search for a new capitalism or for a “new world”… that needs not take a specialized capitalist form?” [Sen, 2009]
He answers his own question: “what is needed above all is a clear-headed appreciation of how different institutions work, along with an understanding of how a variety of organizations – from the market to the institutions of state – can together contribute to producing a more decent economic world.” [Sen, 2009]
He has listened. Have we all?
Carlos Lopes, Geneva, April 2009
Further reading associated with this paper:
APPIAH, Kwame Anthony, Cosmopolitanism. Ethics in a World of Strangers, W.W. Norton & Company, 2006; APTER, David, Globalization and the Politics of Negative Pluralism”, International Social Science Journal, June 2008;
AYTON-SCHENKER, Diana, The Challenge of Human Rights and Cultural Diversity, UN Background Note, 2005;
BARRETT, Scott, Why Cooperate? The Incentive to Supply Global Public Goods, Oxford University Press, 2007;
CHANG, Ha-Joon, “Institutional change and economic development: an introduction”, Institutional change and economic development, UNU Press, 2007;
PREM, “The Global Economic Crisis: Assessing vulnerability with a Poverty Lens, Policy note, 2009;
CRIPPS, Francis, “Vers une réorganisation de l’économie mondiale à l’horizon 2020 : déclin des Etats-Unis et montée en puissance des pays émergents’, Centre international pour l’action en faveur des pauvres, No 63, Août 2008;
FREIXAS, Xavier, “Understanding the crisis: five views and ten lessons”, Catalan International View, Issue 3, Spring 2009;
GARDNER, David, “Democracy denied”, FT, 11-12/04/2009;
HAILU, Degol, “Is the Washington Consensus dead?”, One Pager, International Policy Center for Inclusive Growth, number 82, April 2009;
International Task Force on Global Public Goods, Meeting Global Challenges: International Cooperation in the National Interest. Final Report, Stockholm, 2006;
KRUGMAN, Paul, “America the tarnished”, IHT, 31/03/2009;
LEVI-STRAUSS, Claude, Race and History, UNESCO, 1952;
LEWELLEN, Ted, The Anthropology of Globalization. Cultural Anthropology enters the 21st Century, Bergin & Garvey, 2002;
MAALOUF, Amin, «Le dérèglement du monde», Le Nouvel Observateur, 26/02-4/03/2009;
NORTH, D.C., Institutions, institutional change and economic performance, Cambridge University Press, 1990;
RAMO, Joshua Cooper, The Age of the Unthinkable: Why the New World Disorder Constantly Surprises Us and What We Can Do About It, Little, Brown & Company;
SEN, Amartya, «Adam Smith’s market never stood alone», FT, 11/03/2009;
SEN, Amartya, Identity and violence. The illusion of destiny,
W.W. Norton & Company, 2006;
STERN, Nicolas, A blue print for a safer planet. How to manage climate change and create a new era of progress and prosperity, The Bodley Head, 2009;
UNCTAD, “Keeping ODA afloat: no stone unturned”, UNCTAD Policy Briefs,No 7, March 2009.
Carlos Lopes é Secretário-Geral Assistente das Nações Unidas, diretor executivo da UNITAR Genebra – Agência das Nações Unidas para Tecnologia (www.unitar.org) – e do UN Staff College, Turim (www.unssc.org).
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