the three major
deficiencies structural deficiencies
that countries in the global South have
struggled with from the 1960s to this
day these are the structural
deficiencies that create the external
debt trap where you constantly have to
borrow more in dollars or Euros or
British bounds the root cause of your
borrowing number one is massive food
imports massive energy Imports.
and
number three we industrialized in a way
that locked us into the bottom of the
value chain either completely extractive
Industries or assembly line factories so
we import high value added content we
export low value added content you're
constantly deficient the structural
transformation.
and you go to the roots
of the problems you invest in food
sovereignty you invest in renewable
energy sovereignty and you invest in a
different kind of industrialization that
allows you to climb up the value chain
over
time.
このような構造的欠陥を理解するのに役立つフレーミングを探りたい。
1960年代から今日に至るまで、グローバル・サウスの国々が苦闘してきた3つの主要な欠陥構造的欠陥とは、対外債務の罠を生み出す構造的欠陥のことである。
そして3つ目は、完全な採掘産業か組み立て工場というバリューチェーンの底辺に閉じこもる形で工業化を進めたため、高付加価値のコンテンツを輸入し、低付加価値のコンテンツを輸出している。
問題の根源に目を向け、食料主権に投資し、再生可能エネルギー主権に投資し、時間をかけて価値連鎖を上昇させることができる別の種類の工業化に投資するのです。
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Ep. 7 - Decolonizing International Econ ft. Fadhel Kaboub
2023/08/26
So that brings us
to the three major deficiencies, structural deficiencies that countries in
the global South have struggled with from the 1960s. To this day, these are the structural
deficiencies that create the external debt trap that force countries into this locked
position where you constantly have to borrow more in dollars or euros or British pounds
in order to continue to service the debt. But you're only using a Band-Aid solution. You're not
actually structurally fixing the economy. So let’s ... I want to explore,
Gold Standard
the framing that's helpful to understand these structural deficiencies, but also very
quickly asked that once the U.S. got the world off the gold standard
in the 1970s, did any of this change or just kind of continue in the same way?
Because I know you mentioned. Right, the world got to dollars and the U.S. committed to sticking to gold
and then what happened once we got off gold? So the reason we got off gold in the
early seventies was because the amount of dollar reserves accumulated
in the entire world by other countries, by the central banks was vastly larger
than the amount of gold that the U.S. physically possessed.
So if countries showed up and said, Here are U.S. dollars, you promised to give me gold,
the U.S. wouldn't have enough to meet the needs of the entire globe. It's because there is
pretty much fixed quantity of gold in the world is growing and the volume of trade is growing.
So the U.S., you know, a floating exchange rate
the dollar is no longer fixed to gold or silver or any other precious metal, which meant
all of those countries left with U.S. dollars as a reserve, sort of they just used them
as dollars. Right. They can use them for international trade because by that everybody was trading
in dollars. Oil was the major source of energy for transportation,
for heating and cooling, for industrial activity. So everybody was buying oil in dollars. They were locked into that system
and everybody was indebted in dollars, massively indebted in dollars. So they have
to keep using dollars. When they export anything, they demand dollars so that they
can meet their debt payments. So the deal was essentially sealed by them.
All you have to do is just hook the entire world to your economy,
to your currency, and then you just let them loose. And the rest of the world didn't have
an economic policy strategy to delink essentially from the dollar. There is,
of course, a lot of literature and discussion about it, but most countries in the Global South didn't put in place
the economic strategy that will actually allow them to delink and operate
under a more sovereign economic and financial system. And that is sort of the discussion
that's emerging today. How do we de-link, how do we de-dollarize? Is it just a political announcement?
Is it just a sort of a stunt or is there something much more fundamental
transformative that rebalances the global economy? Because for a long time
people were thinking, oh, you move away from the dollar, you move to the euro, you move away from the euro, you move to
the yuan. It's like there's always something at the top that controls and dominates the entire world.
Otherwise the world can't function. And what we're talking about here is a multiplicity
of currencies that are balancing the entire global economy.
But it's not done by announcement. It's done by actually countries balancing their economies,
balancing trade, balancing the the volume and the content,
the value added content of industrial activity around the world so that we're not divided
between high tech countries and assembly line countries. Right. And I think that. We have a mix.
I think that's really the key there, Fadhel because in a lot of conversations about reserve currencies and dollarization,
de dollarization people do seem to have this tendency to say all you have to do is announce
that you're not going to use dollars anymore. And that fixes the problem when in reality
it sounds like what we're talking about here is really the structure of trade
and the way different needs are being met and who's priorities are at play. When countries
just interact and coexist with one another and a dependency on dollars,
meaning a dependency on everybody existing for the benefit of it
being whether the U.S. or Europe or another powerful sector, and creating what you just mentioned, which is like
a high tech and a low tech system of the world. So on that note, I want to
talk about the Modern Monetary Theory framework really quick. You mentioned that you brought up monetary
sovereignty and, you know, for a long time MMT was
Monetary Sovereignty
kind of viewed as something that made sense for the United States. But some criticisms
were saying that you can't apply that to the rest of the world. And so a lot of your work has begun to expand
that conversation and deepen that conversation onto how do we use the principles of modern monetary theory
for an international perspective, and particularly for the global South. So can you explain?
We have a visual here that kind of explains and draws out the spectrum of monetary
sovereignty. What are we looking at here? So essentially, I mean, the the joke
in international relations that say all nations are sovereign, except, you know, some countries are more sovereign
than others. Well, here we're talking about monetary sovereignty. I mean, everybody's familiar with sort
of the sovereignty of a country. You have your flag, your national anthem, your borders,
military, whatever. We're not talking about that. We're talking about economic and monetary sovereignty.
And here the idea is that, you know, a country that can issue its own
national currency and a lot of countries can do that, that's one basic component
of monetary sovereignty. But it's not sufficient. A country that also imposes
taxes on its people in the same national currency. And again, most countries can do that.
That's part of your monetary sovereignty, but it's not sufficient to the third and fourth
conditions of monetary sovereignty are really the critical ones that most countries in the global
South struggle with. The third condition is that a country can issue bonds and issue
debt denominated in its national currency. And if you do that and only in your
national currency, then you have a high degree of monetary sovereignty. An example of a country
that only issues debt in its national currency, or almost only in this national currency
would be the U.S., Japan, the UK, Canada, Australia, China and so on.
So all of your national debt, quote unquote national debt is denominated in your
national currency. But the reality is that most countries in the global South issue
two types of bonds government bonds, one denominated in the national currency,
and that's the part of the national debt you can manage. And another significant component
is issued in foreign currencies, that is bonds in dollars
and euros and in British pounds and Japanese yen, which means you're borrowing
in dollars or in Japanese yen or in euros, and you're promising to pay back plus interest
in a foreign currency that you can't control in a foreign currency that you must earn somehow.
Right. So once you do that, you're losing a significant degree of your monetary sovereignty.
And then the fourth condition that relates to the degree of monetary sovereignty is how desperate
you are as a country to fix your exchange rate to the dollar or to the euro
or to any other foreign currency. If a country like the U.S. that doesn't
really need to have an active strategy in policy to constantly
fix the dollar to another foreign currency, then you have a very high degree of monetary sovereignty.
In other words, you can let the value of your currency float and fluctuate more or less freely
without having to about it. The reality is that most countries in the global South
are micromanaging in a very obsessive way the value of their currency relative
to the dollar, relative to the euro. Why? Because they have to watch
that exchange rate stability because they're so dependent on food imports and fuel imports
and and pharmaceutical product imports. Because if your currency weakens
The Global South
relative to the dollar, so the exchange rate drops, then everything you buy the next morning,
whether it's food or fuel or medicine for your people, it's going to cost you more. So you're literally
importing inflation and inflation and basic commodities translates
pretty much very quickly into social unrest because people can't
withstand the higher cost of living for basic necessities. So that's why countries in the global South
with massive amounts of external debt, have to actively try to stabilize that exchange rate
as a Band Aid solution. It's not a long term solution. And what does that Band-Aid mean? It means borrowing
more dollars in order to keep the exchange rate stable so you prevent that imported
inflation from hurting your population. And now you're on the hook again to issue more bonds
denominated in dollars for the next year to keep stabilizing that in an artificial
manner. And that's the observation that MMT brings in and says, well,
that's unsustainable, but economically unsustainable financially, politically. So how do you
get a country to gradually move on that spectrum of monetary sovereignty
from the lower end of the spectrum to the higher and higher degree of monetary sovereignty? And you do that
by addressing the root cause of your external debt, the root cause of your borrowing,
which in the case of the global South, are three basic deficiencies. Number one is massive
food imports. You can eyeball it when you look at the the visual composition
of the imports of developing countries. So massive food imports, massive energy
imports. And this is true even for the biggest fossil fuel exporters. A country
like Nigeria, for example, imports 100% of its gasoline.
One of the biggest oil exporters in Africa, because it lacks
that technology and infrastructure, because there are rules put in place and so on. And number three, the basic
deficiency that we struggle with is the fact that we industrialized
in a way that locked us into the bottom of the value chain, either completely extractive
industries or assembly line factories that import all the components, the technology,
the intermediate goods, even the fuel. Right. The fuel, the the machinery in order to produce
low value added content. So we import high value added content. We export low value added content.
You're constantly deficient. So take these three together food imports, energy imports
and value added deficiency that produces a structural trade deficit year after year
that you have to treat either with a Band-Aid or with a structural solution. The Band-Aid is
you borrow money, you fix the exchange rate and keep going. And that's what most countries have been doing.
The structural transform portion. And you go to the roots of the problems. You invest in food sovereignty,
you invest in renewable energy sovereignty, and you invest in a different kind of industrialization
that allows you to climb up the value chain over time.
And that's the basic
observation and premise of a transformative economic development policy.
And that's the number one priority to address climate change, to address the climate
crisis, to address the external debt crisis. So a transformative
set of policies will take a country from that end of the spectrum of monetary sovereignty,
graduate to a higher and higher degree of autonomy. And it's not we're not talking about the global system
where some countries have to be here and the other countries have to be there. No, we're talking about a system
where all countries can be on that higher end of the spectrum, and that means rebalancing
the global economy so that countries can actually produce food for themselves, produce energy
for themselves, produce a reasonable, balanced amount of raw materials, semi processed
and high end, you know, finished products in countries or in blocks
of countries within within regions. But the system that we ended up with is completely
bipolar in the sense that it's rich and industrialized and poor
assembly line type of system that food dependent and energy dependent, technologically
dependent and deeply indebted. And once you you accept your position in that system, it's very hard to
Industrial Policy
to undo it. And I'll give you an example, and this is why I always talk about when it comes
to those solutions, investing in food sovereignty, energy sovereignty and a different kind of industrial policy.
The industrial policy part is really hard to do alone, right. And as I mentioned earlier,
because in a small economy, even if you have 20, 30 million consumers, you can't
industrialize. And that's why I always talk about global South cooperation, South-South trade
and industrialization, Pan-African industrial policy, that is, take Africa,
for example, especially today. And in a world where critical minerals are,
you know, 100 times better than gold, right? Critical minerals that we use for all the high
tech equipment, all the renewable energy infrastructure, the batteries, most of the critical minerals
that we're talking about are right here on this continent or in Latin America. So the global South control
is the actual source of of minerals. So take Africa
alone, take a block of, you know, 20, 30 countries that have all the
critical minerals in the southern part of of Africa. And then you're talking about
Industrialization in Africa
a market of, you know, close to a billion consumers. And we're talking about a continent
today that has 600 million people who have no access to electricity.
More than 900 million people have no access to a clean cooking system.
Right. We're talking about charcoal and things like that. Very dangerous for health or climate for all kinds
of reason, inefficiency and so on. So there's a huge demand for renewable energy production
here, right? We have all the critical minerals, we have all the human capabilities. What we may lack
is the industrial manufacturing capabilities, the technological know how to actually
manufacture solar panels and wind turbines and so on. So if you're a country on your own,
you're sort of holding a slice of this big bargaining chip, right, with the rest
of the world saying, I have all these critical minerals, but if you put those countries together, you have the full chip.
You say, listen, we have all these critical minerals, we have the demand internally so we can industrialize and actually hit
economies of scale because we have a large market and we have the human capabilities.
Now, we would like to partner with you as in partner, right. Not as a neocolonial
relationship. We have the resources, the capabilities, the market. And we would like
to partner with you whether you are Germany or China or the U.S. or Japan for a 50-50
investment strategy, industrialization strategy, where you bring in the technology. We have
the resources and capabilities and market demand to build the manufacturing
base right here on this continent to serve the needs of the people. So this is not export
oriented industrialization. This is for producing value added and retaining value added
within the same system that country by country, but a group of countries. And this is not I'm
not inventing this. Right. This was done specifically in Europe. I'll give you
the classic example where the European countries wanted to compete
with the U.S. when it comes to what Boeing was doing. Boeing was a global
superpower. Right. In terms of producing manufacturing aircraft and and so on, not just military
technology, civilian technology and so on. So when the Europeans wanted to produce the competitive
equivalent of Boeing for commercial aircraft, there wasn't a single
European country that was able to do it because of economies of scale. Right?
Because you need a large market to industrialize in the high tech sector. So what did they do?
They produced a joint venture system where a whole bunch of European countries use their resources
and capabilities in complementary ways to and use the large market
share that they collectively hold to produce Airbus. Airbus wouldn't
exist today if it wasn't a joint venture of, you know, a dozen plus countries
in Europe. So here we're talking about doing the same thing in the global South context,
not necessarily to compete with Boeing, but we're talking about basic necessities, manufacturing the basic units
that we need for renewable energy, manufacturing, the basic supplies that we need
for transportation system that links up the continent manufacturing, the basic needs
that you need for agricultural investments so that you can acquire a higher degree
of food sovereignty, agricultural sovereignty. So this is a different type of industrialization
from the system. We've started and developed in the 1950s where it's just assembly line. That's not your
industrial policy. When you're doing the assembly line type of work, you're actually contributing
to the industrial policy of Germany, the industrial policy of Canada, because they produce everything
and they assign the task to you and you think that it's your industrial policy, It's not an industrial policy.
So here we're talking about doing exactly what Europe has done, what the U.S.
has done, what Japan has done, what China has done, but doing it in the global South context,
the problem that we face is a problem of vision. It's not a problem
of not having the tools or resources or capabilities
or even the historical examples to follow all of those exist. But we live in a
geopolitical system, especially these days that's emerging after the global
financial crisis, emerging after the COVID crisis that disrupted global supply chains and emerged
after the Russia-Ukraine conflict. We see all the major economic blocs
repositioning themselves. The U.S., China and the European
Union primarily. These are the big, you know, blocs globally
we talk about. You know, the Europeans are specifically literally talking about food
sovereignty, literally talking about energy sovereignty in these terms and literally talking about
technological sovereignty, repatriating critical industries back home.
The U.S. is doing the same. China is trying to catch up on technological sovereignty after the US restrictions.
So we're talking about these three blocks that tend to look into the future.
We're talking about 50 to 100 year vision, right? This is where they see themselves. This is how
they see themselves economically, politically, geo strategically and so on. And they have that long
term vision. They use all the tools they have economically, economic diplomacy
to nudge every country, including countries in the global South, into position,
so to speak, for that vision that they have for themselves. And I always say if you don't have a vision,
long term vision for yourself, you're always going to be part of somebody else's vision. They're going to incentivize
you and nudge you and lock you into a debt trap to put you in that position. So all of these
three blocks, their vision for Africa, for the global South, is more
or less similar. They see the global South as the place for cheap raw materials.
They see the global south, as the place to dump their surplus output from industrialized
countries. They see the global South as the place for exotic tourism destinations, and they see
themselves. They see the global South as the place where you outsource all of these obsolete
technologies for assembly line manufacturing. And that is the position in
which the Global South has been for the last 50 plus years. And that's exactly the position
that the Global South has been in during the colonial times. It's precisely the same position.
So the question for all of us today is, is this a turning point in world history
where we can reposition the global South and balance the global economy economically
and politically and ecologically? Are we going to continue to perpetuate the same colonial structures
and as a result, not be able to meet the challenge of poverty, of climate, of stability
and so on? And that's that's the sort of the clarity of
what is happening allows us to make a decision are we wasting our time or are we serious
about what we're trying to do? Something that a lot of countries in the Global
Unemployment in Africa
South sacrifice in order to perpetuate this system is employment
is there's high unemployment and there's a huge informal economy that people are making,
you know, close to nothing and not meeting their needs. Can we kind of
very quickly talk about how the capacity to invest in employment can be part
of the solution to getting us where we need to be? Absolutely. I mean,
the good news about the fact that, you know, we have such a significant lack
of productive capacity and efficiency and productive capacity in the food system and the energy system
and the industrial system is that the solutions that will get us out of these structural traps
of the of the debt trap are solutions that happen to be huge generators
of employment. So you create millions of jobs to produce the basic needs, the basic pillars
for your economy. And you can use something like a job guarantee program
you can start with the youth job guarantee or you can start with, you know, a head of household job guarantee
and then scale up to a full fledged job guarantee system where you literally have
a guaranteed employment with decent wages and benefits but directed and targeted
towards areas that are structurally deficient in the economy, that is renewable
energy investments. The industrial policy that we just talked about on a Pan-African scale, prioritizing
the foundations of your economy as opposed to the system that we have today, which
is prioritizing production of goods and services for exports
to serve the needs of the global North. So it's about redesigning
your employment policy to be in line with that grand vision that we've
outlined, which is investing in food sovereignty, energy sovereignty and manufacturing priorities.
The the basic observation that most people
sort of skip or forget is that you can't have any economy anywhere in the world
that can function without food and without fuel. These the two basic pillars
that unfortunately many of our countries skip and say, oh, we can import the food, we can import
the fuel, let's start producing, you know, assembling those bicycles so we can export them
to Germany. Right? Or we can export them to France. But the problem is, you know,
how how are you going to do that? Right? How can you support an entire population
with imported food or almost an entire population with imported food? So, oh, don't worry about it.
We export cash crops, but cash crops, You're no longer can do that because of droughts, because of you've,
you know, reduced the fertility of your soul with these pesticides and fertilizers and say, oh, don't worry about it
will borrow from the IMF and we'll export even more and then say oh we'll get more tourism.
Tourism is is great, right? You create millions of jobs in the tourism industry. You bring people
who pay in dollars or in euros. So now you have the dollars in euros you need to import food
and to pay for the and so on. Except tourism is actually a structural trap if you don't have food
sovereignty and energy sovereignty. Why? Because the millions of tourists you bring, you have to feed them. So you import
even more food and high quality food. By the way, for them and the tourists you bring, you have to heat
and cool the hotels and transport them. So you have to import even more fuel to support the tourism
industry and you have to import all the high end, you know, furniture and equipment for
for the entertainment and hotels and restaurants and so on. So you end up structurally adding
to your deficit and you're racing to the bottom because we're talking about one country attracting tourism.
Right. But you have 100 other 20, 120 other beautiful countries with beautiful
people and culture and and beaches and everything who are competing with you. So everybody is racing
to the bottom subsidizing the tourism industry, not recognizing that it's
actually adding to the structural deficit when it comes to food imports in energy imports.
So you end up with these false solutions that don't actually get you out of the trap. They drive
you deeper into these structural traps. So this is sort of in a nutshell,
a little bit of what we need to pay attention to when we talk about transformative policies
on a global scale. So, so to kind of wrap things up and come back
full circle to where we started this question that Keynes was facing with
the United States and what to do about the world last century, We have this
climate crisis. And, you know, one of the things that's come to the forefront
of that issue is that the world needs to figure out how to collaborate to solve this this problem. Right.
It sounds like certain forces in the United States and other imperial powers
have justified the way they've done things from like a zero sum vision of the world
whereby, well, if we don't do it for our advantage, someone else is going to do it. And everything
is a big competition and it's always survival of the fittest in a very crude sense. Right?
How do we think about international finance in a world of climate change
from this perspective where we can, you know, think about
how to develop sovereignty in other places, to develop monetary sovereignty, to meet
human needs, but not in a way where, well, if they do better, we have to do worse, right?
Like workers here in the United States are told that if people in Latin America do better, you're going to lose your job.
How do we rethink that so that we can have a vision for sustainable prosperity
that includes everybody? Well, when when you listen to the
conversations today about the debt crisis, for example, in emerging markets,
we're talking about a certain amount of debt relief. We're talking about, you know, providing more
affordable financing for development, more affordable financing for climate adaptation
and climate mitigation. It's mostly for mitigation, very little for adaptation. These days.
The idea is that this will be sufficient somehow. But even if you when you take
into account that visual that we just looked at earlier, the $2 trillion figure, even if you
canceled the entire debt stock of a particular country, of the entire Global
South today, that in and of itself will not be sufficient to solve
our problems to address the climate crisis. Because if you keep intact
the global financial architecture, that is that suction system that takes $2 trillion from the
poorest countries, that that's still in motion. Right. To cancel the entire debt the next year, you're
still going to have lack of food sovereignty, lack of energy sovereignty, deficient industrial
policies. So within ten years, you're going to really humiliate the debt again. You're going to be back
in the same position where you can't meet the needs of your people and therefore you can't even invest
in the infrastructure that you need to adapt to a warming climate to all of these
issues, let alone all the deficiencies we already have on the health front, on the infrastructure front. So
that's what I what I call even the most aggressive strategy to cancel the entire
that even if we're successful at getting that, it's still not sufficient. Right. So
how do you repair this broken system? You repair it literally
with a system of reparations, right? You change the global financial
architecture that was designed not by us, not for us. Right. It's not going to be
the system that will save us today. So you redesign it completely. You rebalance
the global economy, literally rebalanced, not in terms of window dressing, but in
terms of manufacturing base. So every country or regional bloc should have a mix
of industries, of extractive industries, processing,
assembly line, high tech, all balanced within the same country,
including in the U.S. It's important in the U.S. to have assembly line manufacturing, right.
It can't be all high tech and all high paying jobs. It has to be a mix.
It has to be agricultural self-sufficiency in the Global South, not just in the U.S.,
in Australia, not in Ukraine and Russia and a handful of countries, because we saw what happened.
We have one conflict, you have one pandemic, and all of a sudden global supply chains are cut off
and people go hungry and the global south. So we have to rebalance the production
and manufacturing and consumption and we have to give up also the obsession with growth
for its own sake, right? So we have to give up this obsession with GDP and focus on quality of life,
Right. Things that enhance quality of life. This is something that Keynes wrote about 100 years ago. He said, Once
we've discovered better technologies and we we meet the needs of people, right?
Food and fuel and basic quality of life, then we should work
less and enjoy life, right, and focus on quality of life type of investment
rather than, you know, growth for its own sake. As I say, it's this the ideology of a cancer cell.
It will kill you and. It is literally killing the planet and killing us. Right. And it just so happens
that all of these investments that enhance quality of life in the U.S. and Europe, our climate
consists that they're climate solutions, right? Investing in renewable energy,
investing in in the arts, in education, investing
in people. So it's the care economy, right? Caring for people, caring for children,
caring for the elder, caring for planet. These are high priorities,
especially in the global north. The global north doesn't need more consumerism, doesn't need
more growth, it needs better quality economic output. And a lot of it
is in the care economy. And that means when we redesign
the way we produce and consume things in the global north, including transportation, for example,
which is an important factor, we have to do it in a very thoughtful way.
Thank you so much for, though, for breaking all of this down with us. I want to give you a chance because I know
after this pod, a lot of our listeners are going to want to find more of your work. So what are you working on? What would you
point our listeners to? Well, you've highlighted this Just Transition report,
which I had the pleasure of coauthoring with a group of independent experts working
on issues of climate, energy and development policies in Africa.
The Report is available on just Transition Africa dot org.
You will find me in the next at least a year and a half doing work
related to this report. But instead of writing the report, it will be more of the policy advocacy
and policy design work across the African continent.
After that year and a half, I'll be back to Denison University for my teaching job.
I took a two year unpaid leave from Denison to do this type of policy work in Africa,
and I'm very excited to work with the with a fantastic team of
colleagues who helped produce this. This report.
You can find me on social media. I'm pretty active and I usually share everything I do,
whether it's webinar or a new piece or an interview. So looking forward to engaging
with everybody, especially out there. Thank you so much for all this is great.
Thank you. Until next time, Fadhel thank you so much. My pleasure. See you soon.
Intro
0:02Hi, everybody. Welcome to Funny Money. This is a show about the economy, how it works and how it can work
0:07better. Don't forget to like and subscribe and share the podcasts. And if you listen on Apple Podcasts,
0:13leave us a review and please give our producer Mike some apple pie while you're at it. He is so hungry, he just works in
0:19a basement editing this podcast. This is going to be a great episode. We are going
0:24international and so our guest is Prof Fadhel Kaboub
0:30who is an associate professor of economics at Denison University in Ohio, and he is the President
0:36of the Global Institute for Sustainable Prosperity where I happen to be a research fellow at.
0:42He recently served as Undersecretary General for Financing and Development at the Organization
0:47of Southern Cooperation in Addis Ababa, Ethiopia. He's an expert on designing public policies
0:52to enhance monetary and economic sovereignty in the Global South,
0:58build resilience, promote equitable and sustainable prosperity. His work focuses
1:03on a just transition, on climate finance, on transforming global trade and finance,
1:09investment, architecture, all of these great things. We're so excited to have Fidel on the pod. Fidel, welcome.
Currency Wars
1:16Thank you for having me on the show. It's a pleasure. All right. Let's get into it. Let's start at the beginning. But maybe it's
1:22the beginning of the end. This is where things weren't going great, but maybe they started to go worse.
1:28A lot changed about how the international economy was running after World War Two in a
1:33little town in New Hampshire. Can you just talk about how the international order of money
1:39in the global economy changed post World War Two? Yeah,
1:44so it starts before the war actually in the interwar period
1:49where there was a lot of currency wars between European nations in particular,
1:55and this is what is often referred to as “beggar thy neighbor” policy. So, for example,
2:01Germany would artificially devalue its currency relative
2:06to the French currency, and the French would retaliate and would artificially
2:12devalue against the Germans and the British and so on. So what is the devaluation?
2:17It's the easiest thing a country can do once it controls its own currency.
2:22You simply lower the value of your currency relative to another country,
2:28and you do that by flooding the foreign currency market with your own currency. So you just
2:33go into the foreign currency market and you offer to sell more of your own currency, which you can issue freely
2:39and therefore you weaken the value of your currency. And when you do that, there is something
2:45behind it that's advantageous to you, and that is you make everything that you export
2:51relatively cheaper. And that's why the currency devaluation was attractive.
2:56So this way you start accelerating your exports to your neighboring
3:01countries and you destroy their industries basically. And in retaliation they'll try to
3:06do the same. And at the time, this was so important because all of these countries were under
3:11the gold standard. So when you run a trade surplus, when you export more and more and more
3:17to your neighbor, they pay you in gold. And gold was the
3:22reserve currency at the time, and gold was considered the thing that will make a nation more powerful
3:28both economically and militarily. So it was a strategic devaluation
3:33and of course it was extremely destabilizing for business because everybody was using
3:39this artificial devaluation to damage the neighboring economy.
3:44And some would argue that was partly one of the reasons for the
3:51actual Second World War. So towards the end of the war, the allies met in
3:58New Hampshire to figure out a solution to avoid
4:04these currency wars moving forward. And as a result, they sat down and designed
4:09the global financial architecture that we pretty much have to this date, and that is 1944.
4:15So remember, 1944, most of the African continent was still colonized.
4:21There was only three African nations, I believe, present at that meeting
4:26with not a lot of choice or weight to begin with. So when we fast
4:32forward to today's world of financial architecture, a system that was
4:37not designed by us for us cannot be the system that will
4:43save us today from all the financial troubles and the
4:48polycrisis the multiple crises that we're dealing with. So but to go back to your question,
4:54that financial architecture was sort of a competition two proposals, one
4:59coming from the American side and one coming from the British side and representing
5:04the British side was John Maynard Keynes, the famous economist. And representing
5:09the U.S. side was Harry Dexter White. And both proposals were similar
5:15but different in one aspect. The first component of this global
5:20financial architecture was to create the IMF, the International Monetary Fund,
IMF
5:26which will be sort of like the emergency room for countries that have a currency crisis.
5:31In the past, when you had a currency crisis, you can use this artificial devaluation
5:37to stabilize your economy, but at the same time hurt your neighbors with this
5:42currency devaluation. So the IMF would be the place for you to go to avoid this
5:49currency war. The IMF will step in and give you foreign exchange, help you stabilize
5:55your economy. So it's like a short term emergency loan to stabilize
6:01the economy until you recover this way. You don't hurt your your neighbors. So that that was initially
6:06the role of of the IMF. And to some extent, it still functions for the
6:12same purpose, except the conditionalities that imposes on countries that are in currency
6:17crises are extremely severe, their austerity conditions, and they tend to actually hurt
6:23the economies. And in the long run, we can come back to this. The second component of this global financial
6:28architecture was the creation of what we know today as the World Bank. Initially, it wasn't created
World Bank
6:33to develop the Global South or to deal with climate change or any of that because the Global South was colonized.
6:39So what was the role of the purpose of the World Bank? Initially, it was essentially
6:45the bank to finance the reconstruction of Europe because Europe was completely destroyed. And after Europe
6:51was rebuilt after a decade or so, it was sort of reinvented. In the sixties
6:56and seventies, as most of the Global South gained independence, it was reinvented into a development
7:01bank. The bank that we know today. So that's what we ended up with from the Bretton Woods system.
7:07The Keynes proposal, which didn't go through, included a third component,
7:13which will be sort of like a global central bank. That would be
7:18the balancing entity for the global financial architecture and its very simple
7:24mechanical proposal, but very politically unacceptable at the time.
7:30So the idea was for countries that have trade surpluses,
7:35they would use their surplus either to create full employment domestically in their own country,
7:41so they would spend their surplus, create jobs, build infrastructure, do whatever the national
7:46priorities are, or they could spend their surplus to buy things from abroad.
7:51In this way, they would help other countries create jobs and develop and reduce their
7:57trade deficit if they have a trade deficit. Or the third option if you don't
8:02use it, if you don't use your surplus after three years or so, you lose it in other way.
8:08In other ways, it goes to this international central bank that would take that
8:13unused surplus and reallocated to the countries that have structural
8:18trade deficits to help them develop, build infrastructure and balance their economy.
8:24So it's a use it or lose it system. And of course, at the time the US wouldn't
8:29accept such a proposal because it was very clear after World War Two that the
8:34major producer or exporter in the world was going to be the United States
8:39because Japan was destroyed, Europe was destroyed and the rest of
8:45the world was essentially the Global South. So who's the major industrial producer that's going to help
8:51rebuild Japan, rebuild Korea, rebuild the rest of the world? That was the US.
8:56So the US didn't want an international organization to take its surplus
9:03and relocate it based on whatever criteria to other countries that the
9:08US may not want to give its surplus to. So the U.S. wanted to be fully sovereign
9:14and not have any organization tell it what to do. But in practice
9:20this is the beauty of Keynes's proposal. In practice, the U.S. rejected
9:25Keynes's proposal, so we didn't have that system. But in practice, the U.S. did exactly what
9:30Keynes suggested. The U.S. took its trade surplus and more, actually,
9:36and gave it as a gift to Europe in the form of the Marshall Plan.
9:41Without material and financial aid from abroad, the European nations faced
9:46complete collapse
9:52to save Europe from this disaster. General George C. Marshall, the United States Secretary of State
9:58in 1947, made a dramatic appeal to the people of Europe. If they would work together,
10:04the United States would supply the money for food and raw materials essential to recovery.
10:14And we're talking about the equivalent of 5% of U.S.
10:20GDP was gifted to Europe in today's dollar, as this will be close
10:27to $1.5 trillion. And today we're talking about, you know, we don't have any money
10:32for climate change. We don't have any money for, you know, loss and damage fund to compensate the Global South
10:37for the damage we caused, things like that. So just to put things in perspective, so that's the IMF,
10:44the World Bank, the Bretton Woods system that we ended up with in 1944. Then there's
10:49another major organization which we can talk about, which is the WTO. That was created much, much
WTO
10:54later that. But the process for it started in the 1960s through the GATT,
11:00a series of GATT agreements that culminated in the creation of the WTO. And that's kind of the third
11:06pillar of the system we live in today. Yeah, let's actually get into to the World
11:11Trade Organization for a second here. I would be curious for you to just explain what it was
11:16at its genesis and what it actually went on to do. So it started as a series of
11:22free trade agreements initially between major developed countries, the U.S.
11:27and Europe and Japan and Australia and so on. And then eventually it started
11:33to include more and more of the developing nations, because in the 1960s
11:38and seventies, quite a bit of the global South became independent countries and started signing their own agreements
11:44and so on. But the basic principle of it, and this is something that people are always,
11:50forget about the history of international trade as it relates to development.
11:55It was a belief that, free trade enhances competition,
12:01that free trade is good, it's healthy, just like, you know, sports competition
12:07is healthy for you, except that, you know, in sports, I always use
12:12the boxing metaphor here, if you like boxing and you will never see
12:18a heavyweight champion in the ring with a lightweight champion and call that healthy competition.
12:23It's illegal, it's immoral, it's ugly, and nobody wants it, no matter how much you like boxing, right.
12:29But in international trade, we allow a heavyweight champion like the U.S.
12:34or Japan in the ring with a lightweight champion or a lightweight boxer from the
12:39global South. And we call that healthy competition. It's good for you. Of course, it's not destructive.
12:45So some of the basic rules of the initial GATT agreements
12:50and international trade agreements was okay, we agree. Some of the countries in the global South are
12:56not competitive enough. They're recently independent, they're not industrialized. So we'll give them
13:01a little bit of time. This was called at the time the infant industry hypothesis.
13:07It's like a little infant. You have to give it time to protect it, to grow it until it's strong enough
13:13to withstand the competition. So a lot of the developing countries were exempt
13:18from these trade rules for a period of ten years, 15 years, depending on
13:24the agreement. And the idea was that they will use that time to grow their industries and be able
13:29to compete. And of course, due to a lot of reasons, some of those
13:35countries, the majority of those countries were not able to industrialize in the same way
13:40as the US. Ten years is not enough to industrialize because you have a small internal
13:45market, say, of 10 million consumers. There's no way you can build an industry
13:50that is robust with 10 million consumers. Let's say you wanted to produce bicycles hypothetically,
13:56right? You have 10 million consumers. You produce the first 10 million bicycles
14:01in the first year and a half, and then what do you do? You're going to have to export to a larger market
14:07because every time you talk about manufacturing, the key word is economies
14:12of scale, economies of scale, meaning the larger the volume of your production,
14:18the lower the cost per unit, the better the quality, the more competitive you become. So you really need
14:23the large market of 50 to 100 million consumers to industrialize.
14:28And that bicycle industry, for example. So what do you do if you have to export? Well, the problem
14:34is that you're exporting and now you're competing with Made in Germany, made in Japan, made in Switzerland.
14:39There's no way that your bicycles will be competitive. So what you end up doing is one of
14:45the big bicycle manufacturers from Germany or Japan or Switzerland will come to you
14:51and say, Listen, you can't really play this game. Here's what you can do. We're going to partner with you.
14:56We're going to help you industrialize. How about you give up this manufacturing of bicycles altogether?
15:01We will produce the high quality components in Switzerland, in Germany and so on.
15:07And then we'll ship you all the components or bring you the machinery, the equipment and everything. You know, you just do the assembly
15:12for us, right? The low value added content is now assigned to you,
15:18the Global South, and we are in charge of the marketing, the distribution,
15:23the manufacturing of the high tech components, the technology, the design. Everything is
15:29in our hands. You just do the assembly with your low cost labor. So most of the global South to this day
15:35is stuck in that kind of manufacturing. And that is one
15:41big part of the story of our global crisis. Today in the global South, the external debt crisis,
15:47including the climate crisis, by the way. And the second most important component that a lot of
15:52people forget when we talk about these crises today is the issue of food at the time
15:58when the general the GATT agreement I should have spelled it out GATT is that
16:03general agreement on tariffs and trade because countries imposed tariffs
16:08to protect their industries and so on. So that GATT agreement,
16:13everybody at the time used to say explicitly, they say we believe in free trade in everything
16:18but arms and farms. So free trade in everything except weapons, understandably,
16:24and food. Why? Because at the time 1960s,
16:30most of the industrialized world realized that all of these former colonies
16:36that used to be the bread basket for Europe, for example, are now independent
16:42countries. In Europe, the former colonizers, they didn't have food sovereignty.
16:47They became food dependent on. Now these new African countries who have their own
16:53policies and sovereignty and so on. So 1955, as the Europeans met in Rome
16:59for the first major meeting that led eventually to the creation of the European Union,
17:05they said, We can't have this. We need to establish a food sovereignty system
17:10in the European Union and started the series of negotiations on what that thing
17:15will look like. 1962, they signed CAP, which is the Common
17:20Agricultural Policy. Policymakers and politicians realized the farmers are
CAP
17:26very important. Therefore, the farmers were guaranteed good prices for their products
17:31in order to improve their work methods, enlarge their farms and work more efficiently.
17:38CAP is still in place to this day. It's a system of massive subsidies
17:44and support to European farmers to produce core crops wheat, corn,
17:49soybeans, barley, you name it, the basic staples for human survival.
17:55And that meant, as the European Union was doing this from 1962.
18:01And similarly the U.S. was doing the same Japan, Canada, Australia and the former Soviet Union,
18:06by the way, which today is mostly Russia and Ukraine, major food
18:12producers, all of those countries became heavily subsidized, was of those core staples,
18:18whereas the Global South didn't have the foresight or the capability to heavily
18:24subsidized their own farmers. So now if you're a farmer in the global South and you produce corn, for example,
18:30or wheat, all of a sudden your selling price is much higher than Ukrainian,
18:36American, French, Russian, Australian prices. So what do you do? You lose business
18:41and you have two options. One is to sell the land, give up farming and move
18:47to urban areas and work on those new and these new factories, right. Assembly line
18:52factories to assemble those components for those bicycles. As a low wage worker.
18:57So you move from being a skilled farmer to an unskilled labor. Right. And quote
19:02unquote, unskilled labor. And in manufacturing or the other option,
19:08you can still farm your land, but you can't do wheat or barley or corn because that's not
19:14you're not competitive in that area. What you can do is you can produce strawberries for export,
19:20you can produce bananas, you can produce tomatoes, you can produce what we call cash crops.
19:25So these are things that you want to export to Europe. These are complementary foods,
19:30not basic survival foods. Right. Not key to your food sovereignty. So now all of a sudden
19:36you have a massive amount of farmers who are giving up the production of four staples and switching
19:42to cash crops. And that starts the debt trap cycle that persists to this day.
19:48And if you indulge me, I'll just add a couple of, key points about how
19:53this vicious system continues because it's extremely destructive. So now
19:59the cash crops you're selling them in Europe, right, to industrialized
20:04countries. So you have to serve the taste of those consumers. They want strawberries, they want tomatoes,
20:10they want. And the and the tomatoes, they have to look really pretty right.
20:15And the strawberries, they have to look perfect. Right? Because you're selling this for export and they have to
20:20survive the journey, Right? So you have to harvest them and ship them and get them to supermarkets
20:26and they have to look perfect. So the problem is your native crops won't do it
20:32because they'll go bad after a week, right. And they don't look perfect and they may not match the taste
20:38of the European consumer. So over time you gradually start switching your native seeds
20:44and native crops with imported crops from Europe, from the U.S.,
20:50from other places, to match the needs of your customers. Right. Customers. KING Here. So the problem is
20:56those seeds can't really survive in your climate unless you give them lots of
21:01fertilizers, lots of water, lots of pesticides, right? So that they look clean and perfect,
21:08which means after you use those seeds and fertilizers
21:13and pesticides, all of which you have to import, by the way, after you do that for 5 to 10 years,
21:19the yields start to decline. Why? Because you've just burnt all the nutrients
21:24in your soil. So what do you do? You have to buy even more aggressive
21:29fertilizers. You have to cultivate larger areas of land dedicated to that
21:35particular crop. And now you have to consume even more water. In many countries in the global South, you're facing droughts
21:41and so on. So you've moved away from the seeds that can survive years of drought,
21:46that can, you know, produce a certain produce a reasonable yield
21:52without fertilizers, with pesticides, and now becoming completely dependent on these imports.
21:58And simultaneously you're not producing enough wheat or corn or soybean for your people.
22:03You have to import those from Russia, from the Ukraine, from the US, from France and so on. So that becomes
22:09a persistent cycle of external debt.
22:14Fast forward to today. Africa, for example, imports 85% of its food,
22:20the most fertile soil on the planet is in Africa, and yet we import
22:2685% of the food on this continent. Not by accident. Again, if all you have
22:31to do is go back to the 1960s and follow those major decisions and how they persist to
22:36this day. So that's that's the system we live in today and eventually get after many,
22:42many countries joined, it turned into the World Trade Organization, the WTO,
22:48which is the international organization that governs the rules of free trade.
22:53And of course, it became more vicious over time by establishing more aggressive rules
22:58against countries in the global South who tried to subsidize their industries
23:03because that's unfair or try to subsidize their farmers because that's unfair competition
23:09or try to impose tariffs and restrictions on imported goods. Right. So if you do that,
23:16you get taken to court within the WTO, not an independent court within the WTO says, look,
23:21you signed to these rules, you agreed to these rules, now you're subsidizing your industry. You can't do that. We're going
23:27to impose sanctions. We're going to isolate you or you're going to have to pay compensation for the companies
23:32that lost business because of your subsidies and so on. So this is what
23:37Professor Chang from Cambridge in his famous book referred to as Kicking Away The Ladder.
Kicking Away
23:43In his 2003 book, Kicking Away the Ladder, Chang argued that the developed world
23:49puts pressure on poorer nations to adopt certain economic policies. These,
23:54they say, are essential to economic development. But Chang asks,
24:00How did the rich countries really become rich? When he looked back through history,
24:05Chang found that past economic evolution did not resemble the process pushed on poorer nations today.
24:12The countries that climb to the top using a particular ladder, which is the ladder of subsidies
24:17and industrial policies and so on. After they reach the top and became industrialized,
24:23they turn away and take away, the latter and said Nobody else can do this. We've established the rules and we enforce
24:28them. And you can't you know, violate those rules. So that
24:34gives you a little bit of preview of how that system that was, again, designed
24:39not by us, not for us. The global South, that is, can't be the system that today
24:45will save us from a global food crisis, a global energy crisis, a global
24:50financial crisis, a climate crisis. Of course. This was also
Neocolonization
24:56a period of time here where you had Western countries
25:01start to really believe that colonization was wrong, but they also
25:08developed this neo colonization, right? The development of passive dependency,
25:14not only just when it came to trade and when it came to the economy, but also
25:19when it came to currency and money and financial institutions. Can you just say a little bit about the debt
25:25crisis being a tool, these development loans that were extremely
25:31predatory, creating new dependencies when it came to currency and money?
25:36Absolutely. Well, in fact, I mean, the the colonial period,
25:42over time became sort of embarrassing for
25:48the Western world because, we have people preaching about
25:53human rights and freedom and liberty in the West. Right. And democracy, while at the
25:58same time having, entire nations enslaved and colonized. It became
26:04untenable, embarrassing at home. But also in the global South, you have more and more,
26:10rebellions and and arguments for independence. So,
26:16they did the right thing, right? We're no longer going to, operate in a colonial system.
26:21We're going to transition to a system of independence except the neo
26:26colonial system that was established afterwards was essentially the continuation
26:31of colonial structures, because during the colonial times,
26:37if you look at most colonizers, over time, they realized that they really
26:42didn't need their physical presence of their military troops. It became sort of troublesome
26:48after a while, because it's just, drawing more attention, drawing more clashes.
26:54They figured that they could get all the benefits that they wanted from colonialism,
26:59which was extraction of resources, which is extraction of,
27:06labor power, which is having a large market
27:11in the colonies to dump the surplus output that they produce back home.
27:17They figured that they can actually continue to do that, to extract resources, use low cost labor, dump the surplus
27:23and control and manipulate those who govern those countries
27:28remotely from abroad without any troops physically present,
27:33and by signing international agreements that lock those relationships
27:38into place to this day. So that's what we call neo colonial system. And that was not
27:45done by accident because you can see it immediately after independence, how all of those
27:50international agreements and all of those bilateral relationships were established
27:56to continue the same colonial economic structures. And it continues to this day.
28:01So you fast forward to today's world. What we have is
28:07if you divide the world into, say, global north and global South and you net out
28:13all global financial transactions, that includes exports, imports,
28:18remittances of workers, sending money back home interest payments, even debt relief,
28:25foreign direct investment, all global financial transactions, net all those amounts. And the last figure
28:31we have from a few years ago is $2 trillion moving from
28:36the Global South to the global North. That is money moving from the poorest countries
28:41to the richest countries, $2 trillion annually. And that number when you go back, say, 20 years ago
28:47was about $500 billion a year and then it became a trillion and then a trillion and a half.
28:53And today it's about 2 trillion. And if we don't change anything about the global
28:59financial architecture that governs this system, this neo colonial global architecture, that number will
29:04be five, six, maybe $10 trillion in a few years, and money will
29:10keep moving in the wrong direction. And the visual that you have there kind of gives you put things
29:15in perspective when you when you look at that $2 trillion, you know, big circle that's actually
29:20moving in the wrong direction, it's sort of offset with all of this talk and all of this,
29:26back and forth about climate finance. Yes, we need to give the Global South more financial support
29:31for a just transition and all of that. We're talking about a promise of $100 billion a year
29:37that was promised more than a decade ago. Very little of it was delivered. The best estimate
29:43from the last couple of years is maybe we've reached $20 billion in one year,
29:48not even close. And then when you talk about the Green Climate Fund, which was supposed to have,
29:54you know, $100 billion a year, the last time I checked, was less than $11 billion.
30:00And with very restrictive conditionalities on who gets to qualify for
30:05for that financial assistance. And a lot of it is loans, not really grants.
30:11And then there's that white, tiny, tiny little dot which is 0 USD $0.
30:17That's the Loss and Damage fund. That's the actual reparations fund that John Kerry
30:22a few days ago told us. No way. The U.S. is not going to pay reparations to the
30:27developing countries for for climate change. So put this in perspective. I take $2 trillion every year
30:33from you and I promised to give you a hundred and I only deliver 11, and then I promise to pay
30:39for reparations and I give you zero in that empty bucket.
30:44It's the worst joke you can deliver when it comes to observing
30:49what happens in the global financial system. And that is the system that we're talking about when we say changing
30:55the system that was created in 1944, that creates these vicious cycles of debt
31:00that prevents sovereign countries in the global South from meeting the basic
31:06priorities and needs of their own people. And then on top of it, you throw a climate crisis that we didn't
31:11contribute to Africa, contributes cumulative contribution to CO2 emissions
31:16is about 4% of global emissions. That's the exact equivalent
31:22of what Spain emits every year. Spain alone. Right? So we're talking about
31:27a system that's designed not to allow the Global South
31:33to develop, to meet the needs and aspirations of its people. And then
31:38we turn back and say, well, you don't have a functioning system, you don't have a democracy.
31:43Well, how can you democratize a system that hasn't been decolonized yet
31:49economically, if I don't have the fiscal space or the financial wherewithal, or
31:54because I'm stuck in a debt trap because of all the rules you establish in 1944, the colonial
32:00and neo colonial rules, how can they economically meet the needs and aspirations
32:05of my people so I can have a democracy where I can actually respond to the needs
32:10of the people? Right? So this is that's why I always say you can't
32:15decarbonize a system that hasn't been decolonized yet. You can't democratize
32:21a system that hasn't been decolonized yet. And similarly, you can't de-dollarize a system
32:27that hasn't been decolonized yet. You have to have a comprehensive approach that touches on
32:32all of these pieces so you can actually start to decolonize on the food front,
32:38on the energy front, on the manufacturing front. And when you do that, you gain
32:43a higher degree of autonomy, a higher degree of monetary sovereignty and economic sovereignty
32:48that allows you then in a functioning democracy to meet the needs of your people.
32:53Otherwise your hands are tied and you can't do that. You can talk all you want
32:59about democracy, but if you can't deliver, your people will turn against you.
33:04Can you say a bit? This is, I think, a pretty related point, but what does it mean
Reserve Currency
33:10to be a reserve currency? And is being a reserve currency
33:15the only way for a government to spend a lot?
33:21So the reserve currency system sort of was inherited
33:26from the gold standard system right back in the day under the gold standard system countries
33:33fixed the value of their currency to the price of gold and when they trade internationally
33:39across borders, you export, you import. If you end up with the trade surplus,
33:44the other country will pay you in gold. And if you end up with a trade deficit,
33:50you have to pay other countries in gold. So all of these countries under the gold standard
33:55were obsessed with the accumulation of gold, right? So you wanted to
34:01have a trade surplus. So this was the mercantilist system. And one way to,
34:07accumulate gold is either via trade. So the stronger your economy compared to
34:12your neighbors, the more gold you accumulate. The other option, of course, is you go colonize half the world
34:18and find those gold mines and accumulate gold. But that was the the fixed exchange
34:23rate system, the gold standard system that we had when we transitioned to the Bretton Woods system
34:30right after 1944, the U.S. emerged as as the
34:35most powerful country economically and militarily. And the U.S.
34:40proposal, not the Keynes proposal, was a proposal where all countries
34:46will fix the value of their currency, not to gold anymore, but they'll fix it to the dollar.
34:52And then the U.S. government committed to fixing the value of the dollar to
34:57the price of gold. And that was the fixed exchange rate system. Dollar is anchored
35:02to gold, and then all other countries anchor to the dollar. So this way, no country
35:08has to accumulate gold. But instead, countries, are incentivized
35:13to accumulate U.S. dollars because that's the equivalent of gold in this
35:18post-World war. Two system. So countries again became obsessed with exporting
35:24as much as they can so that they have dollars that they can use for reserves,
35:29and that that created the dollar reserve currency system and that
35:34essentially created an international trade system where two neighboring
35:40countries exporting and importing from each other. They have nothing to do with the US, right? Think to
35:45developing countries. One country selling bananas to the neighboring country, the other countries selling mangoes
35:51to the neighboring country instead of trading in their own currencies. They say, No, no, no, no, sorry, we're going
35:56to have to trade in dollars. Why? Because I need those dollars to buy wheat from the Ukraine
36:01or to buy wheat from France or from Germany. Right. Because of the international food system
36:06or because need to import oil from Saudi Arabia. Right. Because now oil is
36:11is priced in dollars. So everybody's stuck in this system where they have
36:17to earn as much U.S. dollars as possible. Why? Because their debt to the IMF,
36:22their debt to the World Bank is also in dollars. Why? Because they needed those dollars to buy
36:27wheat, right. Or to buy fuel or to buy medicine or to buy high tech equipment from
36:33the Western world. So everybody started using dollars. And now your debt is denominated
36:38in dollars. And if you have a structural trade deficit that persists every year, then every year you're borrowing
36:44even more in dollars and have cash commitments to meet in dollars to pay the principal
36:50and interest in perpetuity almost. So that created a system
36:55where you're forced to accumulate dollars because you're not using proper
37:01economic policy strategies to get you out of that vicious trap of
37:07indebtedness, external indebtedness. And this is where sort of the MMT framework emerges
37:14in the last 20 years or so, initially focused on U.S. and Western
37:19industrialized countries issues. But then the last ten years, we started looking at how can a developing country
37:26that's in this global financial architecture with massive amounts of debt, how can that
37:31country gradually accumulate higher and higher degrees of monetary
37:36sovereignty so it can actually arise? Right. So what's
37:41the process by which it's not, de-dollarizing It's not kind of a political stunt.
37:46You just go on TV and say, from now on, we're de-dollarizing No more use of U.S. dollars. Well, that's great, but how are you going
37:52to do it? It's not just about not using dollars. It's about the economic underneath.
Intro
0:02Hi, everybody. Welcome to Funny Money. This is a show about the economy, how it works and how it can work
0:07better. Don't forget to like and subscribe and share the podcasts. And if you listen on Apple Podcasts,
0:13leave us a review and please give our producer Mike some apple pie while you're at it. He is so hungry, he just works in
0:19a basement editing this podcast. This is going to be a great episode. We are going
0:24international and so our guest is Prof Fadhel Kaboub
0:30who is an associate professor of economics at Denison University in Ohio, and he is the President
0:36of the Global Institute for Sustainable Prosperity where I happen to be a research fellow at.
0:42He recently served as Undersecretary General for Financing and Development at the Organization
0:47of Southern Cooperation in Addis Ababa, Ethiopia. He's an expert on designing public policies
0:52to enhance monetary and economic sovereignty in the Global South,
0:58build resilience, promote equitable and sustainable prosperity. His work focuses
1:03on a just transition, on climate finance, on transforming global trade and finance,
1:09investment, architecture, all of these great things. We're so excited to have Fidel on the pod. Fidel, welcome.
Currency Wars
1:16Thank you for having me on the show. It's a pleasure. All right. Let's get into it. Let's start at the beginning. But maybe it's
1:22the beginning of the end. This is where things weren't going great, but maybe they started to go worse.
1:28A lot changed about how the international economy was running after World War Two in a
1:33little town in New Hampshire. Can you just talk about how the international order of money
1:39in the global economy changed post World War Two? Yeah,
1:44so it starts before the war actually in the interwar period
1:49where there was a lot of currency wars between European nations in particular,
1:55and this is what is often referred to as “beggar thy neighbor” policy. So, for example,
2:01Germany would artificially devalue its currency relative
2:06to the French currency, and the French would retaliate and would artificially
2:12devalue against the Germans and the British and so on. So what is the devaluation?
2:17It's the easiest thing a country can do once it controls its own currency.
2:22You simply lower the value of your currency relative to another country,
2:28and you do that by flooding the foreign currency market with your own currency. So you just
2:33go into the foreign currency market and you offer to sell more of your own currency, which you can issue freely
2:39and therefore you weaken the value of your currency. And when you do that, there is something
2:45behind it that's advantageous to you, and that is you make everything that you export
2:51relatively cheaper. And that's why the currency devaluation was attractive.
2:56So this way you start accelerating your exports to your neighboring
3:01countries and you destroy their industries basically. And in retaliation they'll try to
3:06do the same. And at the time, this was so important because all of these countries were under
3:11the gold standard. So when you run a trade surplus, when you export more and more and more
3:17to your neighbor, they pay you in gold. And gold was the
3:22reserve currency at the time, and gold was considered the thing that will make a nation more powerful
3:28both economically and militarily. So it was a strategic devaluation
3:33and of course it was extremely destabilizing for business because everybody was using
3:39this artificial devaluation to damage the neighboring economy.
3:44And some would argue that was partly one of the reasons for the
3:51actual Second World War. So towards the end of the war, the allies met in
3:58New Hampshire to figure out a solution to avoid
4:04these currency wars moving forward. And as a result, they sat down and designed
4:09the global financial architecture that we pretty much have to this date, and that is 1944.
4:15So remember, 1944, most of the African continent was still colonized.
4:21There was only three African nations, I believe, present at that meeting
4:26with not a lot of choice or weight to begin with. So when we fast
4:32forward to today's world of financial architecture, a system that was
4:37not designed by us for us cannot be the system that will
4:43save us today from all the financial troubles and the
4:48polycrisis the multiple crises that we're dealing with. So but to go back to your question,
4:54that financial architecture was sort of a competition two proposals, one
4:59coming from the American side and one coming from the British side and representing
5:04the British side was John Maynard Keynes, the famous economist. And representing
5:09the U.S. side was Harry Dexter White. And both proposals were similar
5:15but different in one aspect. The first component of this global
5:20financial architecture was to create the IMF, the International Monetary Fund,
IMF
5:26which will be sort of like the emergency room for countries that have a currency crisis.
5:31In the past, when you had a currency crisis, you can use this artificial devaluation
5:37to stabilize your economy, but at the same time hurt your neighbors with this
5:42currency devaluation. So the IMF would be the place for you to go to avoid this
5:49currency war. The IMF will step in and give you foreign exchange, help you stabilize
5:55your economy. So it's like a short term emergency loan to stabilize
6:01the economy until you recover this way. You don't hurt your your neighbors. So that that was initially
6:06the role of of the IMF. And to some extent, it still functions for the
6:12same purpose, except the conditionalities that imposes on countries that are in currency
6:17crises are extremely severe, their austerity conditions, and they tend to actually hurt
6:23the economies. And in the long run, we can come back to this. The second component of this global financial
6:28architecture was the creation of what we know today as the World Bank. Initially, it wasn't created
World Bank
6:33to develop the Global South or to deal with climate change or any of that because the Global South was colonized.
6:39So what was the role of the purpose of the World Bank? Initially, it was essentially
6:45the bank to finance the reconstruction of Europe because Europe was completely destroyed. And after Europe
6:51was rebuilt after a decade or so, it was sort of reinvented. In the sixties
6:56and seventies, as most of the Global South gained independence, it was reinvented into a development
7:01bank. The bank that we know today. So that's what we ended up with from the Bretton Woods system.
7:07The Keynes proposal, which didn't go through, included a third component,
7:13which will be sort of like a global central bank. That would be
7:18the balancing entity for the global financial architecture and its very simple
7:24mechanical proposal, but very politically unacceptable at the time.
7:30So the idea was for countries that have trade surpluses,
7:35they would use their surplus either to create full employment domestically in their own country,
7:41so they would spend their surplus, create jobs, build infrastructure, do whatever the national
7:46priorities are, or they could spend their surplus to buy things from abroad.
7:51In this way, they would help other countries create jobs and develop and reduce their
7:57trade deficit if they have a trade deficit. Or the third option if you don't
8:02use it, if you don't use your surplus after three years or so, you lose it in other way.
8:08In other ways, it goes to this international central bank that would take that
8:13unused surplus and reallocated to the countries that have structural
8:18trade deficits to help them develop, build infrastructure and balance their economy.
8:24So it's a use it or lose it system. And of course, at the time the US wouldn't
8:29accept such a proposal because it was very clear after World War Two that the
8:34major producer or exporter in the world was going to be the United States
8:39because Japan was destroyed, Europe was destroyed and the rest of
8:45the world was essentially the Global South. So who's the major industrial producer that's going to help
8:51rebuild Japan, rebuild Korea, rebuild the rest of the world? That was the US.
8:56So the US didn't want an international organization to take its surplus
9:03and relocate it based on whatever criteria to other countries that the
9:08US may not want to give its surplus to. So the U.S. wanted to be fully sovereign
9:14and not have any organization tell it what to do. But in practice
9:20this is the beauty of Keynes's proposal. In practice, the U.S. rejected
9:25Keynes's proposal, so we didn't have that system. But in practice, the U.S. did exactly what
9:30Keynes suggested. The U.S. took its trade surplus and more, actually,
9:36and gave it as a gift to Europe in the form of the Marshall Plan.
9:41Without material and financial aid from abroad, the European nations faced
9:46complete collapse
9:52to save Europe from this disaster. General George C. Marshall, the United States Secretary of State
9:58in 1947, made a dramatic appeal to the people of Europe. If they would work together,
10:04the United States would supply the money for food and raw materials essential to recovery.
10:14And we're talking about the equivalent of 5% of U.S.
10:20GDP was gifted to Europe in today's dollar, as this will be close
10:27to $1.5 trillion. And today we're talking about, you know, we don't have any money
10:32for climate change. We don't have any money for, you know, loss and damage fund to compensate the Global South
10:37for the damage we caused, things like that. So just to put things in perspective, so that's the IMF,
10:44the World Bank, the Bretton Woods system that we ended up with in 1944. Then there's
10:49another major organization which we can talk about, which is the WTO. That was created much, much
WTO
10:54later that. But the process for it started in the 1960s through the GATT,
11:00a series of GATT agreements that culminated in the creation of the WTO. And that's kind of the third
11:06pillar of the system we live in today. Yeah, let's actually get into to the World
11:11Trade Organization for a second here. I would be curious for you to just explain what it was
11:16at its genesis and what it actually went on to do. So it started as a series of
11:22free trade agreements initially between major developed countries, the U.S.
11:27and Europe and Japan and Australia and so on. And then eventually it started
11:33to include more and more of the developing nations, because in the 1960s
11:38and seventies, quite a bit of the global South became independent countries and started signing their own agreements
11:44and so on. But the basic principle of it, and this is something that people are always,
11:50forget about the history of international trade as it relates to development.
11:55It was a belief that, free trade enhances competition,
12:01that free trade is good, it's healthy, just like, you know, sports competition
12:07is healthy for you, except that, you know, in sports, I always use
12:12the boxing metaphor here, if you like boxing and you will never see
12:18a heavyweight champion in the ring with a lightweight champion and call that healthy competition.
12:23It's illegal, it's immoral, it's ugly, and nobody wants it, no matter how much you like boxing, right.
12:29But in international trade, we allow a heavyweight champion like the U.S.
12:34or Japan in the ring with a lightweight champion or a lightweight boxer from the
12:39global South. And we call that healthy competition. It's good for you. Of course, it's not destructive.
12:45So some of the basic rules of the initial GATT agreements
12:50and international trade agreements was okay, we agree. Some of the countries in the global South are
12:56not competitive enough. They're recently independent, they're not industrialized. So we'll give them
13:01a little bit of time. This was called at the time the infant industry hypothesis.
13:07It's like a little infant. You have to give it time to protect it, to grow it until it's strong enough
13:13to withstand the competition. So a lot of the developing countries were exempt
13:18from these trade rules for a period of ten years, 15 years, depending on
13:24the agreement. And the idea was that they will use that time to grow their industries and be able
13:29to compete. And of course, due to a lot of reasons, some of those
13:35countries, the majority of those countries were not able to industrialize in the same way
13:40as the US. Ten years is not enough to industrialize because you have a small internal
13:45market, say, of 10 million consumers. There's no way you can build an industry
13:50that is robust with 10 million consumers. Let's say you wanted to produce bicycles hypothetically,
13:56right? You have 10 million consumers. You produce the first 10 million bicycles
14:01in the first year and a half, and then what do you do? You're going to have to export to a larger market
14:07because every time you talk about manufacturing, the key word is economies
14:12of scale, economies of scale, meaning the larger the volume of your production,
14:18the lower the cost per unit, the better the quality, the more competitive you become. So you really need
14:23the large market of 50 to 100 million consumers to industrialize.
14:28And that bicycle industry, for example. So what do you do if you have to export? Well, the problem
14:34is that you're exporting and now you're competing with Made in Germany, made in Japan, made in Switzerland.
14:39There's no way that your bicycles will be competitive. So what you end up doing is one of
14:45the big bicycle manufacturers from Germany or Japan or Switzerland will come to you
14:51and say, Listen, you can't really play this game. Here's what you can do. We're going to partner with you.
14:56We're going to help you industrialize. How about you give up this manufacturing of bicycles altogether?
15:01We will produce the high quality components in Switzerland, in Germany and so on.
15:07And then we'll ship you all the components or bring you the machinery, the equipment and everything. You know, you just do the assembly
15:12for us, right? The low value added content is now assigned to you,
15:18the Global South, and we are in charge of the marketing, the distribution,
15:23the manufacturing of the high tech components, the technology, the design. Everything is
15:29in our hands. You just do the assembly with your low cost labor. So most of the global South to this day
15:35is stuck in that kind of manufacturing. And that is one
15:41big part of the story of our global crisis. Today in the global South, the external debt crisis,
15:47including the climate crisis, by the way. And the second most important component that a lot of
15:52people forget when we talk about these crises today is the issue of food at the time
15:58when the general the GATT agreement I should have spelled it out GATT is that
16:03general agreement on tariffs and trade because countries imposed tariffs
16:08to protect their industries and so on. So that GATT agreement,
16:13everybody at the time used to say explicitly, they say we believe in free trade in everything
16:18but arms and farms. So free trade in everything except weapons, understandably,
16:24and food. Why? Because at the time 1960s,
16:30most of the industrialized world realized that all of these former colonies
16:36that used to be the bread basket for Europe, for example, are now independent
16:42countries. In Europe, the former colonizers, they didn't have food sovereignty.
16:47They became food dependent on. Now these new African countries who have their own
16:53policies and sovereignty and so on. So 1955, as the Europeans met in Rome
16:59for the first major meeting that led eventually to the creation of the European Union,
17:05they said, We can't have this. We need to establish a food sovereignty system
17:10in the European Union and started the series of negotiations on what that thing
17:15will look like. 1962, they signed CAP, which is the Common
17:20Agricultural Policy. Policymakers and politicians realized the farmers are
CAP
17:26very important. Therefore, the farmers were guaranteed good prices for their products
17:31in order to improve their work methods, enlarge their farms and work more efficiently.
17:38CAP is still in place to this day. It's a system of massive subsidies
17:44and support to European farmers to produce core crops wheat, corn,
17:49soybeans, barley, you name it, the basic staples for human survival.
17:55And that meant, as the European Union was doing this from 1962.
18:01And similarly the U.S. was doing the same Japan, Canada, Australia and the former Soviet Union,
18:06by the way, which today is mostly Russia and Ukraine, major food
18:12producers, all of those countries became heavily subsidized, was of those core staples,
18:18whereas the Global South didn't have the foresight or the capability to heavily
18:24subsidized their own farmers. So now if you're a farmer in the global South and you produce corn, for example,
18:30or wheat, all of a sudden your selling price is much higher than Ukrainian,
18:36American, French, Russian, Australian prices. So what do you do? You lose business
18:41and you have two options. One is to sell the land, give up farming and move
18:47to urban areas and work on those new and these new factories, right. Assembly line
18:52factories to assemble those components for those bicycles. As a low wage worker.
18:57So you move from being a skilled farmer to an unskilled labor. Right. And quote
19:02unquote, unskilled labor. And in manufacturing or the other option,
19:08you can still farm your land, but you can't do wheat or barley or corn because that's not
19:14you're not competitive in that area. What you can do is you can produce strawberries for export,
19:20you can produce bananas, you can produce tomatoes, you can produce what we call cash crops.
19:25So these are things that you want to export to Europe. These are complementary foods,
19:30not basic survival foods. Right. Not key to your food sovereignty. So now all of a sudden
19:36you have a massive amount of farmers who are giving up the production of four staples and switching
19:42to cash crops. And that starts the debt trap cycle that persists to this day.
19:48And if you indulge me, I'll just add a couple of, key points about how
19:53this vicious system continues because it's extremely destructive. So now
19:59the cash crops you're selling them in Europe, right, to industrialized
20:04countries. So you have to serve the taste of those consumers. They want strawberries, they want tomatoes,
20:10they want. And the and the tomatoes, they have to look really pretty right.
20:15And the strawberries, they have to look perfect. Right? Because you're selling this for export and they have to
20:20survive the journey, Right? So you have to harvest them and ship them and get them to supermarkets
20:26and they have to look perfect. So the problem is your native crops won't do it
20:32because they'll go bad after a week, right. And they don't look perfect and they may not match the taste
20:38of the European consumer. So over time you gradually start switching your native seeds
20:44and native crops with imported crops from Europe, from the U.S.,
20:50from other places, to match the needs of your customers. Right. Customers. KING Here. So the problem is
20:56those seeds can't really survive in your climate unless you give them lots of
21:01fertilizers, lots of water, lots of pesticides, right? So that they look clean and perfect,
21:08which means after you use those seeds and fertilizers
21:13and pesticides, all of which you have to import, by the way, after you do that for 5 to 10 years,
21:19the yields start to decline. Why? Because you've just burnt all the nutrients
21:24in your soil. So what do you do? You have to buy even more aggressive
21:29fertilizers. You have to cultivate larger areas of land dedicated to that
21:35particular crop. And now you have to consume even more water. In many countries in the global South, you're facing droughts
21:41and so on. So you've moved away from the seeds that can survive years of drought,
21:46that can, you know, produce a certain produce a reasonable yield
21:52without fertilizers, with pesticides, and now becoming completely dependent on these imports.
21:58And simultaneously you're not producing enough wheat or corn or soybean for your people.
22:03You have to import those from Russia, from the Ukraine, from the US, from France and so on. So that becomes
22:09a persistent cycle of external debt.
22:14Fast forward to today. Africa, for example, imports 85% of its food,
22:20the most fertile soil on the planet is in Africa, and yet we import
22:2685% of the food on this continent. Not by accident. Again, if all you have
22:31to do is go back to the 1960s and follow those major decisions and how they persist to
22:36this day. So that's that's the system we live in today and eventually get after many,
22:42many countries joined, it turned into the World Trade Organization, the WTO,
22:48which is the international organization that governs the rules of free trade.
22:53And of course, it became more vicious over time by establishing more aggressive rules
22:58against countries in the global South who tried to subsidize their industries
23:03because that's unfair or try to subsidize their farmers because that's unfair competition
23:09or try to impose tariffs and restrictions on imported goods. Right. So if you do that,
23:16you get taken to court within the WTO, not an independent court within the WTO says, look,
23:21you signed to these rules, you agreed to these rules, now you're subsidizing your industry. You can't do that. We're going
23:27to impose sanctions. We're going to isolate you or you're going to have to pay compensation for the companies
23:32that lost business because of your subsidies and so on. So this is what
23:37Professor Chang from Cambridge in his famous book referred to as Kicking Away The Ladder.
Kicking Away
23:43In his 2003 book, Kicking Away the Ladder, Chang argued that the developed world
23:49puts pressure on poorer nations to adopt certain economic policies. These,
23:54they say, are essential to economic development. But Chang asks,
24:00How did the rich countries really become rich? When he looked back through history,
24:05Chang found that past economic evolution did not resemble the process pushed on poorer nations today.
24:12The countries that climb to the top using a particular ladder, which is the ladder of subsidies
24:17and industrial policies and so on. After they reach the top and became industrialized,
24:23they turn away and take away, the latter and said Nobody else can do this. We've established the rules and we enforce
24:28them. And you can't you know, violate those rules. So that
24:34gives you a little bit of preview of how that system that was, again, designed
24:39not by us, not for us. The global South, that is, can't be the system that today
24:45will save us from a global food crisis, a global energy crisis, a global
24:50financial crisis, a climate crisis. Of course. This was also
Neocolonization
24:56a period of time here where you had Western countries
25:01start to really believe that colonization was wrong, but they also
25:08developed this neo colonization, right? The development of passive dependency,
25:14not only just when it came to trade and when it came to the economy, but also
25:19when it came to currency and money and financial institutions. Can you just say a little bit about the debt
25:25crisis being a tool, these development loans that were extremely
25:31predatory, creating new dependencies when it came to currency and money?
25:36Absolutely. Well, in fact, I mean, the the colonial period,
25:42over time became sort of embarrassing for
25:48the Western world because, we have people preaching about
25:53human rights and freedom and liberty in the West. Right. And democracy, while at the
25:58same time having, entire nations enslaved and colonized. It became
26:04untenable, embarrassing at home. But also in the global South, you have more and more,
26:10rebellions and and arguments for independence. So,
26:16they did the right thing, right? We're no longer going to, operate in a colonial system.
26:21We're going to transition to a system of independence except the neo
26:26colonial system that was established afterwards was essentially the continuation
26:31of colonial structures, because during the colonial times,
26:37if you look at most colonizers, over time, they realized that they really
26:42didn't need their physical presence of their military troops. It became sort of troublesome
26:48after a while, because it's just, drawing more attention, drawing more clashes.
26:54They figured that they could get all the benefits that they wanted from colonialism,
26:59which was extraction of resources, which is extraction of,
27:06labor power, which is having a large market
27:11in the colonies to dump the surplus output that they produce back home.
27:17They figured that they can actually continue to do that, to extract resources, use low cost labor, dump the surplus
27:23and control and manipulate those who govern those countries
27:28remotely from abroad without any troops physically present,
27:33and by signing international agreements that lock those relationships
27:38into place to this day. So that's what we call neo colonial system. And that was not
27:45done by accident because you can see it immediately after independence, how all of those
27:50international agreements and all of those bilateral relationships were established
27:56to continue the same colonial economic structures. And it continues to this day.
28:01So you fast forward to today's world. What we have is
28:07if you divide the world into, say, global north and global South and you net out
28:13all global financial transactions, that includes exports, imports,
28:18remittances of workers, sending money back home interest payments, even debt relief,
28:25foreign direct investment, all global financial transactions, net all those amounts. And the last figure
28:31we have from a few years ago is $2 trillion moving from
28:36the Global South to the global North. That is money moving from the poorest countries
28:41to the richest countries, $2 trillion annually. And that number when you go back, say, 20 years ago
28:47was about $500 billion a year and then it became a trillion and then a trillion and a half.
28:53And today it's about 2 trillion. And if we don't change anything about the global
28:59financial architecture that governs this system, this neo colonial global architecture, that number will
29:04be five, six, maybe $10 trillion in a few years, and money will
29:10keep moving in the wrong direction. And the visual that you have there kind of gives you put things
29:15in perspective when you when you look at that $2 trillion, you know, big circle that's actually
29:20moving in the wrong direction, it's sort of offset with all of this talk and all of this,
29:26back and forth about climate finance. Yes, we need to give the Global South more financial support
29:31for a just transition and all of that. We're talking about a promise of $100 billion a year
29:37that was promised more than a decade ago. Very little of it was delivered. The best estimate
29:43from the last couple of years is maybe we've reached $20 billion in one year,
29:48not even close. And then when you talk about the Green Climate Fund, which was supposed to have,
29:54you know, $100 billion a year, the last time I checked, was less than $11 billion.
30:00And with very restrictive conditionalities on who gets to qualify for
30:05for that financial assistance. And a lot of it is loans, not really grants.
30:11And then there's that white, tiny, tiny little dot which is 0 USD $0.
30:17That's the Loss and Damage fund. That's the actual reparations fund that John Kerry
30:22a few days ago told us. No way. The U.S. is not going to pay reparations to the
30:27developing countries for for climate change. So put this in perspective. I take $2 trillion every year
30:33from you and I promised to give you a hundred and I only deliver 11, and then I promise to pay
30:39for reparations and I give you zero in that empty bucket.
30:44It's the worst joke you can deliver when it comes to observing
30:49what happens in the global financial system. And that is the system that we're talking about when we say changing
30:55the system that was created in 1944, that creates these vicious cycles of debt
31:00that prevents sovereign countries in the global South from meeting the basic
31:06priorities and needs of their own people. And then on top of it, you throw a climate crisis that we didn't
31:11contribute to Africa, contributes cumulative contribution to CO2 emissions
31:16is about 4% of global emissions. That's the exact equivalent
31:22of what Spain emits every year. Spain alone. Right? So we're talking about
31:27a system that's designed not to allow the Global South
31:33to develop, to meet the needs and aspirations of its people. And then
31:38we turn back and say, well, you don't have a functioning system, you don't have a democracy.
31:43Well, how can you democratize a system that hasn't been decolonized yet
31:49economically, if I don't have the fiscal space or the financial wherewithal, or
31:54because I'm stuck in a debt trap because of all the rules you establish in 1944, the colonial
32:00and neo colonial rules, how can they economically meet the needs and aspirations
32:05of my people so I can have a democracy where I can actually respond to the needs
32:10of the people? Right? So this is that's why I always say you can't
32:15decarbonize a system that hasn't been decolonized yet. You can't democratize
32:21a system that hasn't been decolonized yet. And similarly, you can't de-dollarize a system
32:27that hasn't been decolonized yet. You have to have a comprehensive approach that touches on
32:32all of these pieces so you can actually start to decolonize on the food front,
32:38on the energy front, on the manufacturing front. And when you do that, you gain
32:43a higher degree of autonomy, a higher degree of monetary sovereignty and economic sovereignty
32:48that allows you then in a functioning democracy to meet the needs of your people.
32:53Otherwise your hands are tied and you can't do that. You can talk all you want
32:59about democracy, but if you can't deliver, your people will turn against you.
33:04Can you say a bit? This is, I think, a pretty related point, but what does it mean
Reserve Currency
33:10to be a reserve currency? And is being a reserve currency
33:15the only way for a government to spend a lot?
33:21So the reserve currency system sort of was inherited
33:26from the gold standard system right back in the day under the gold standard system countries
33:33fixed the value of their currency to the price of gold and when they trade internationally
33:39across borders, you export, you import. If you end up with the trade surplus,
33:44the other country will pay you in gold. And if you end up with a trade deficit,
33:50you have to pay other countries in gold. So all of these countries under the gold standard
33:55were obsessed with the accumulation of gold, right? So you wanted to
34:01have a trade surplus. So this was the mercantilist system. And one way to,
34:07accumulate gold is either via trade. So the stronger your economy compared to
34:12your neighbors, the more gold you accumulate. The other option, of course, is you go colonize half the world
34:18and find those gold mines and accumulate gold. But that was the the fixed exchange
34:23rate system, the gold standard system that we had when we transitioned to the Bretton Woods system
34:30right after 1944, the U.S. emerged as as the
34:35most powerful country economically and militarily. And the U.S.
34:40proposal, not the Keynes proposal, was a proposal where all countries
34:46will fix the value of their currency, not to gold anymore, but they'll fix it to the dollar.
34:52And then the U.S. government committed to fixing the value of the dollar to
34:57the price of gold. And that was the fixed exchange rate system. Dollar is anchored
35:02to gold, and then all other countries anchor to the dollar. So this way, no country
35:08has to accumulate gold. But instead, countries, are incentivized
35:13to accumulate U.S. dollars because that's the equivalent of gold in this
35:18post-World war. Two system. So countries again became obsessed with exporting
35:24as much as they can so that they have dollars that they can use for reserves,
35:29and that that created the dollar reserve currency system and that
35:34essentially created an international trade system where two neighboring
35:40countries exporting and importing from each other. They have nothing to do with the US, right? Think to
35:45developing countries. One country selling bananas to the neighboring country, the other countries selling mangoes
35:51to the neighboring country instead of trading in their own currencies. They say, No, no, no, no, sorry, we're going
35:56to have to trade in dollars. Why? Because I need those dollars to buy wheat from the Ukraine
36:01or to buy wheat from France or from Germany. Right. Because of the international food system
36:06or because need to import oil from Saudi Arabia. Right. Because now oil is
36:11is priced in dollars. So everybody's stuck in this system where they have
36:17to earn as much U.S. dollars as possible. Why? Because their debt to the IMF,
36:22their debt to the World Bank is also in dollars. Why? Because they needed those dollars to buy
36:27wheat, right. Or to buy fuel or to buy medicine or to buy high tech equipment from
36:33the Western world. So everybody started using dollars. And now your debt is denominated
36:38in dollars. And if you have a structural trade deficit that persists every year, then every year you're borrowing
36:44even more in dollars and have cash commitments to meet in dollars to pay the principal
36:50and interest in perpetuity almost. So that created a system
36:55where you're forced to accumulate dollars because you're not using proper
37:01economic policy strategies to get you out of that vicious trap of
37:07indebtedness, external indebtedness. And this is where sort of the MMT framework emerges
37:14in the last 20 years or so, initially focused on U.S. and Western
37:19industrialized countries issues. But then the last ten years, we started looking at how can a developing country
37:26that's in this global financial architecture with massive amounts of debt, how can that
37:31country gradually accumulate higher and higher degrees of monetary
37:36sovereignty so it can actually arise? Right. So what's
37:41the process by which it's not, de-dollarizing It's not kind of a political stunt.
37:46You just go on TV and say, from now on, we're de-dollarizing No more use of U.S. dollars. Well, that's great, but how are you going
37:52to do it? It's not just about not using dollars. It's about the economic underneath.
So that brings us
37:58to the three major deficiencies, structural deficiencies that countries in
38:03the global South have struggled with from the 1960s. To this day, these are the structural
38:08deficiencies that create the external debt trap that force countries into this locked
38:15position where you constantly have to borrow more in dollars or euros or British pounds
38:21in order to continue to service the debt. But you're only using a Band-Aid solution. You're not
38:26actually structurally fixing the economy. So let’s ... I want to explore,
Gold Standard
38:32the framing that's helpful to understand these structural deficiencies, but also very
38:37quickly asked that once the U.S. got the world off the gold standard
38:42in the 1970s, did any of this change or just kind of continue in the same way?
38:48Because I know you mentioned. Right, the world got to dollars and the U.S. committed to sticking to gold
38:53and then what happened once we got off gold? So the reason we got off gold in the
38:59early seventies was because the amount of dollar reserves accumulated
39:04in the entire world by other countries, by the central banks was vastly larger
39:10than the amount of gold that the U.S. physically possessed.
39:15So if countries showed up and said, Here are U.S. dollars, you promised to give me gold,
39:21the U.S. wouldn't have enough to meet the needs of the entire globe. It's because there is
39:26pretty much fixed quantity of gold in the world is growing and the volume of trade is growing.
39:31So the U.S., you know, a floating exchange rate
39:38the dollar is no longer fixed to gold or silver or any other precious metal, which meant
39:43all of those countries left with U.S. dollars as a reserve, sort of they just used them
39:49as dollars. Right. They can use them for international trade because by that everybody was trading
39:54in dollars. Oil was the major source of energy for transportation,
39:59for heating and cooling, for industrial activity. So everybody was buying oil in dollars. They were locked into that system
40:05and everybody was indebted in dollars, massively indebted in dollars. So they have
40:11to keep using dollars. When they export anything, they demand dollars so that they
40:16can meet their debt payments. So the deal was essentially sealed by them.
40:21All you have to do is just hook the entire world to your economy,
40:26to your currency, and then you just let them loose. And the rest of the world didn't have
40:32an economic policy strategy to delink essentially from the dollar. There is,
40:38of course, a lot of literature and discussion about it, but most countries in the Global South didn't put in place
40:43the economic strategy that will actually allow them to delink and operate
40:49under a more sovereign economic and financial system. And that is sort of the discussion
40:54that's emerging today. How do we de-link, how do we de-dollarize? Is it just a political announcement?
41:00Is it just a sort of a stunt or is there something much more fundamental
41:05transformative that rebalances the global economy? Because for a long time
41:11people were thinking, oh, you move away from the dollar, you move to the euro, you move away from the euro, you move to
41:16the yuan. It's like there's always something at the top that controls and dominates the entire world.
41:22Otherwise the world can't function. And what we're talking about here is a multiplicity
41:28of currencies that are balancing the entire global economy.
41:33But it's not done by announcement. It's done by actually countries balancing their economies,
41:38balancing trade, balancing the the volume and the content,
41:44the value added content of industrial activity around the world so that we're not divided
41:49between high tech countries and assembly line countries. Right. And I think that. We have a mix.
41:55I think that's really the key there, Fadhel because in a lot of conversations about reserve currencies and dollarization,
42:01de dollarization people do seem to have this tendency to say all you have to do is announce
42:07that you're not going to use dollars anymore. And that fixes the problem when in reality
42:12it sounds like what we're talking about here is really the structure of trade
42:18and the way different needs are being met and who's priorities are at play. When countries
42:24just interact and coexist with one another and a dependency on dollars,
42:29meaning a dependency on everybody existing for the benefit of it
42:35being whether the U.S. or Europe or another powerful sector, and creating what you just mentioned, which is like
42:40a high tech and a low tech system of the world. So on that note, I want to
42:46talk about the Modern Monetary Theory framework really quick. You mentioned that you brought up monetary
42:51sovereignty and, you know, for a long time MMT was
Monetary Sovereignty
42:57kind of viewed as something that made sense for the United States. But some criticisms
43:02were saying that you can't apply that to the rest of the world. And so a lot of your work has begun to expand
43:09that conversation and deepen that conversation onto how do we use the principles of modern monetary theory
43:15for an international perspective, and particularly for the global South. So can you explain?
43:21We have a visual here that kind of explains and draws out the spectrum of monetary
43:26sovereignty. What are we looking at here? So essentially, I mean, the the joke
43:32in international relations that say all nations are sovereign, except, you know, some countries are more sovereign
43:37than others. Well, here we're talking about monetary sovereignty. I mean, everybody's familiar with sort
43:43of the sovereignty of a country. You have your flag, your national anthem, your borders,
43:48military, whatever. We're not talking about that. We're talking about economic and monetary sovereignty.
43:53And here the idea is that, you know, a country that can issue its own
43:58national currency and a lot of countries can do that, that's one basic component
44:04of monetary sovereignty. But it's not sufficient. A country that also imposes
44:09taxes on its people in the same national currency. And again, most countries can do that.
44:14That's part of your monetary sovereignty, but it's not sufficient to the third and fourth
44:19conditions of monetary sovereignty are really the critical ones that most countries in the global
44:24South struggle with. The third condition is that a country can issue bonds and issue
44:30debt denominated in its national currency. And if you do that and only in your
44:35national currency, then you have a high degree of monetary sovereignty. An example of a country
44:40that only issues debt in its national currency, or almost only in this national currency
44:46would be the U.S., Japan, the UK, Canada, Australia, China and so on.
44:52So all of your national debt, quote unquote national debt is denominated in your
44:57national currency. But the reality is that most countries in the global South issue
45:02two types of bonds government bonds, one denominated in the national currency,
45:08and that's the part of the national debt you can manage. And another significant component
45:14is issued in foreign currencies, that is bonds in dollars
45:19and euros and in British pounds and Japanese yen, which means you're borrowing
45:25in dollars or in Japanese yen or in euros, and you're promising to pay back plus interest
45:31in a foreign currency that you can't control in a foreign currency that you must earn somehow.
45:36Right. So once you do that, you're losing a significant degree of your monetary sovereignty.
45:42And then the fourth condition that relates to the degree of monetary sovereignty is how desperate
45:48you are as a country to fix your exchange rate to the dollar or to the euro
45:53or to any other foreign currency. If a country like the U.S. that doesn't
45:58really need to have an active strategy in policy to constantly
46:04fix the dollar to another foreign currency, then you have a very high degree of monetary sovereignty.
46:09In other words, you can let the value of your currency float and fluctuate more or less freely
46:14without having to about it. The reality is that most countries in the global South
46:19are micromanaging in a very obsessive way the value of their currency relative
46:25to the dollar, relative to the euro. Why? Because they have to watch
46:30that exchange rate stability because they're so dependent on food imports and fuel imports
46:36and and pharmaceutical product imports. Because if your currency weakens
The Global South
46:41relative to the dollar, so the exchange rate drops, then everything you buy the next morning,
46:47whether it's food or fuel or medicine for your people, it's going to cost you more. So you're literally
46:52importing inflation and inflation and basic commodities translates
46:57pretty much very quickly into social unrest because people can't
47:03withstand the higher cost of living for basic necessities. So that's why countries in the global South
47:08with massive amounts of external debt, have to actively try to stabilize that exchange rate
47:14as a Band Aid solution. It's not a long term solution. And what does that Band-Aid mean? It means borrowing
47:20more dollars in order to keep the exchange rate stable so you prevent that imported
47:25inflation from hurting your population. And now you're on the hook again to issue more bonds
47:31denominated in dollars for the next year to keep stabilizing that in an artificial
47:37manner. And that's the observation that MMT brings in and says, well,
47:43that's unsustainable, but economically unsustainable financially, politically. So how do you
47:48get a country to gradually move on that spectrum of monetary sovereignty
47:53from the lower end of the spectrum to the higher and higher degree of monetary sovereignty? And you do that
47:58by addressing the root cause of your external debt, the root cause of your borrowing,
48:04which in the case of the global South, are three basic deficiencies. Number one is massive
48:09food imports. You can eyeball it when you look at the the visual composition
48:15of the imports of developing countries. So massive food imports, massive energy
48:21imports. And this is true even for the biggest fossil fuel exporters. A country
48:26like Nigeria, for example, imports 100% of its gasoline.
48:31One of the biggest oil exporters in Africa, because it lacks
48:36that technology and infrastructure, because there are rules put in place and so on. And number three, the basic
48:42deficiency that we struggle with is the fact that we industrialized
48:47in a way that locked us into the bottom of the value chain, either completely extractive
48:52industries or assembly line factories that import all the components, the technology,
48:58the intermediate goods, even the fuel. Right. The fuel, the the machinery in order to produce
49:03low value added content. So we import high value added content. We export low value added content.
49:09You're constantly deficient. So take these three together food imports, energy imports
49:14and value added deficiency that produces a structural trade deficit year after year
49:20that you have to treat either with a Band-Aid or with a structural solution. The Band-Aid is
49:26you borrow money, you fix the exchange rate and keep going. And that's what most countries have been doing.
49:31The structural transform portion. And you go to the roots of the problems. You invest in food sovereignty,
49:37you invest in renewable energy sovereignty, and you invest in a different kind of industrialization
49:43that allows you to climb up the value chain over time.
37:58to the three major deficiencies, structural deficiencies that countries in
38:03the global South have struggled with from the 1960s. To this day, these are the structural
38:08deficiencies that create the external debt trap that force countries into this locked
38:15position where you constantly have to borrow more in dollars or euros or British pounds
38:21in order to continue to service the debt. But you're only using a Band-Aid solution. You're not
38:26actually structurally fixing the economy. So let’s ... I want to explore,
Gold Standard
38:32the framing that's helpful to understand these structural deficiencies, but also very
38:37quickly asked that once the U.S. got the world off the gold standard
38:42in the 1970s, did any of this change or just kind of continue in the same way?
38:48Because I know you mentioned. Right, the world got to dollars and the U.S. committed to sticking to gold
38:53and then what happened once we got off gold? So the reason we got off gold in the
38:59early seventies was because the amount of dollar reserves accumulated
39:04in the entire world by other countries, by the central banks was vastly larger
39:10than the amount of gold that the U.S. physically possessed.
39:15So if countries showed up and said, Here are U.S. dollars, you promised to give me gold,
39:21the U.S. wouldn't have enough to meet the needs of the entire globe. It's because there is
39:26pretty much fixed quantity of gold in the world is growing and the volume of trade is growing.
39:31So the U.S., you know, a floating exchange rate
39:38the dollar is no longer fixed to gold or silver or any other precious metal, which meant
39:43all of those countries left with U.S. dollars as a reserve, sort of they just used them
39:49as dollars. Right. They can use them for international trade because by that everybody was trading
39:54in dollars. Oil was the major source of energy for transportation,
39:59for heating and cooling, for industrial activity. So everybody was buying oil in dollars. They were locked into that system
40:05and everybody was indebted in dollars, massively indebted in dollars. So they have
40:11to keep using dollars. When they export anything, they demand dollars so that they
40:16can meet their debt payments. So the deal was essentially sealed by them.
40:21All you have to do is just hook the entire world to your economy,
40:26to your currency, and then you just let them loose. And the rest of the world didn't have
40:32an economic policy strategy to delink essentially from the dollar. There is,
40:38of course, a lot of literature and discussion about it, but most countries in the Global South didn't put in place
40:43the economic strategy that will actually allow them to delink and operate
40:49under a more sovereign economic and financial system. And that is sort of the discussion
40:54that's emerging today. How do we de-link, how do we de-dollarize? Is it just a political announcement?
41:00Is it just a sort of a stunt or is there something much more fundamental
41:05transformative that rebalances the global economy? Because for a long time
41:11people were thinking, oh, you move away from the dollar, you move to the euro, you move away from the euro, you move to
41:16the yuan. It's like there's always something at the top that controls and dominates the entire world.
41:22Otherwise the world can't function. And what we're talking about here is a multiplicity
41:28of currencies that are balancing the entire global economy.
41:33But it's not done by announcement. It's done by actually countries balancing their economies,
41:38balancing trade, balancing the the volume and the content,
41:44the value added content of industrial activity around the world so that we're not divided
41:49between high tech countries and assembly line countries. Right. And I think that. We have a mix.
41:55I think that's really the key there, Fadhel because in a lot of conversations about reserve currencies and dollarization,
42:01de dollarization people do seem to have this tendency to say all you have to do is announce
42:07that you're not going to use dollars anymore. And that fixes the problem when in reality
42:12it sounds like what we're talking about here is really the structure of trade
42:18and the way different needs are being met and who's priorities are at play. When countries
42:24just interact and coexist with one another and a dependency on dollars,
42:29meaning a dependency on everybody existing for the benefit of it
42:35being whether the U.S. or Europe or another powerful sector, and creating what you just mentioned, which is like
42:40a high tech and a low tech system of the world. So on that note, I want to
42:46talk about the Modern Monetary Theory framework really quick. You mentioned that you brought up monetary
42:51sovereignty and, you know, for a long time MMT was
Monetary Sovereignty
42:57kind of viewed as something that made sense for the United States. But some criticisms
43:02were saying that you can't apply that to the rest of the world. And so a lot of your work has begun to expand
43:09that conversation and deepen that conversation onto how do we use the principles of modern monetary theory
43:15for an international perspective, and particularly for the global South. So can you explain?
43:21We have a visual here that kind of explains and draws out the spectrum of monetary
43:26sovereignty. What are we looking at here? So essentially, I mean, the the joke
43:32in international relations that say all nations are sovereign, except, you know, some countries are more sovereign
43:37than others. Well, here we're talking about monetary sovereignty. I mean, everybody's familiar with sort
43:43of the sovereignty of a country. You have your flag, your national anthem, your borders,
43:48military, whatever. We're not talking about that. We're talking about economic and monetary sovereignty.
43:53And here the idea is that, you know, a country that can issue its own
43:58national currency and a lot of countries can do that, that's one basic component
44:04of monetary sovereignty. But it's not sufficient. A country that also imposes
44:09taxes on its people in the same national currency. And again, most countries can do that.
44:14That's part of your monetary sovereignty, but it's not sufficient to the third and fourth
44:19conditions of monetary sovereignty are really the critical ones that most countries in the global
44:24South struggle with. The third condition is that a country can issue bonds and issue
44:30debt denominated in its national currency. And if you do that and only in your
44:35national currency, then you have a high degree of monetary sovereignty. An example of a country
44:40that only issues debt in its national currency, or almost only in this national currency
44:46would be the U.S., Japan, the UK, Canada, Australia, China and so on.
44:52So all of your national debt, quote unquote national debt is denominated in your
44:57national currency. But the reality is that most countries in the global South issue
45:02two types of bonds government bonds, one denominated in the national currency,
45:08and that's the part of the national debt you can manage. And another significant component
45:14is issued in foreign currencies, that is bonds in dollars
45:19and euros and in British pounds and Japanese yen, which means you're borrowing
45:25in dollars or in Japanese yen or in euros, and you're promising to pay back plus interest
45:31in a foreign currency that you can't control in a foreign currency that you must earn somehow.
45:36Right. So once you do that, you're losing a significant degree of your monetary sovereignty.
45:42And then the fourth condition that relates to the degree of monetary sovereignty is how desperate
45:48you are as a country to fix your exchange rate to the dollar or to the euro
45:53or to any other foreign currency. If a country like the U.S. that doesn't
45:58really need to have an active strategy in policy to constantly
46:04fix the dollar to another foreign currency, then you have a very high degree of monetary sovereignty.
46:09In other words, you can let the value of your currency float and fluctuate more or less freely
46:14without having to about it. The reality is that most countries in the global South
46:19are micromanaging in a very obsessive way the value of their currency relative
46:25to the dollar, relative to the euro. Why? Because they have to watch
46:30that exchange rate stability because they're so dependent on food imports and fuel imports
46:36and and pharmaceutical product imports. Because if your currency weakens
The Global South
46:41relative to the dollar, so the exchange rate drops, then everything you buy the next morning,
46:47whether it's food or fuel or medicine for your people, it's going to cost you more. So you're literally
46:52importing inflation and inflation and basic commodities translates
46:57pretty much very quickly into social unrest because people can't
47:03withstand the higher cost of living for basic necessities. So that's why countries in the global South
47:08with massive amounts of external debt, have to actively try to stabilize that exchange rate
47:14as a Band Aid solution. It's not a long term solution. And what does that Band-Aid mean? It means borrowing
47:20more dollars in order to keep the exchange rate stable so you prevent that imported
47:25inflation from hurting your population. And now you're on the hook again to issue more bonds
47:31denominated in dollars for the next year to keep stabilizing that in an artificial
47:37manner. And that's the observation that MMT brings in and says, well,
47:43that's unsustainable, but economically unsustainable financially, politically. So how do you
47:48get a country to gradually move on that spectrum of monetary sovereignty
47:53from the lower end of the spectrum to the higher and higher degree of monetary sovereignty? And you do that
47:58by addressing the root cause of your external debt, the root cause of your borrowing,
48:04which in the case of the global South, are three basic deficiencies. Number one is massive
48:09food imports. You can eyeball it when you look at the the visual composition
48:15of the imports of developing countries. So massive food imports, massive energy
48:21imports. And this is true even for the biggest fossil fuel exporters. A country
48:26like Nigeria, for example, imports 100% of its gasoline.
48:31One of the biggest oil exporters in Africa, because it lacks
48:36that technology and infrastructure, because there are rules put in place and so on. And number three, the basic
48:42deficiency that we struggle with is the fact that we industrialized
48:47in a way that locked us into the bottom of the value chain, either completely extractive
48:52industries or assembly line factories that import all the components, the technology,
48:58the intermediate goods, even the fuel. Right. The fuel, the the machinery in order to produce
49:03low value added content. So we import high value added content. We export low value added content.
49:09You're constantly deficient. So take these three together food imports, energy imports
49:14and value added deficiency that produces a structural trade deficit year after year
49:20that you have to treat either with a Band-Aid or with a structural solution. The Band-Aid is
49:26you borrow money, you fix the exchange rate and keep going. And that's what most countries have been doing.
49:31The structural transform portion. And you go to the roots of the problems. You invest in food sovereignty,
49:37you invest in renewable energy sovereignty, and you invest in a different kind of industrialization
49:43that allows you to climb up the value chain over time.
And that's the basic
49:48observation and premise of a transformative economic development policy.
49:53And that's the number one priority to address climate change, to address the climate
50:00crisis, to address the external debt crisis. So a transformative
50:06set of policies will take a country from that end of the spectrum of monetary sovereignty,
50:11graduate to a higher and higher degree of autonomy. And it's not we're not talking about the global system
50:17where some countries have to be here and the other countries have to be there. No, we're talking about a system
50:22where all countries can be on that higher end of the spectrum, and that means rebalancing
50:27the global economy so that countries can actually produce food for themselves, produce energy
50:33for themselves, produce a reasonable, balanced amount of raw materials, semi processed
50:39and high end, you know, finished products in countries or in blocks
50:44of countries within within regions. But the system that we ended up with is completely
50:49bipolar in the sense that it's rich and industrialized and poor
50:54assembly line type of system that food dependent and energy dependent, technologically
51:00dependent and deeply indebted. And once you you accept your position in that system, it's very hard to
Industrial Policy
51:06to undo it. And I'll give you an example, and this is why I always talk about when it comes
51:12to those solutions, investing in food sovereignty, energy sovereignty and a different kind of industrial policy.
51:17The industrial policy part is really hard to do alone, right. And as I mentioned earlier,
51:23because in a small economy, even if you have 20, 30 million consumers, you can't
51:28industrialize. And that's why I always talk about global South cooperation, South-South trade
51:34and industrialization, Pan-African industrial policy, that is, take Africa,
51:39for example, especially today. And in a world where critical minerals are,
51:45you know, 100 times better than gold, right? Critical minerals that we use for all the high
51:50tech equipment, all the renewable energy infrastructure, the batteries, most of the critical minerals
51:55that we're talking about are right here on this continent or in Latin America. So the global South control
52:01is the actual source of of minerals. So take Africa
52:06alone, take a block of, you know, 20, 30 countries that have all the
52:11critical minerals in the southern part of of Africa. And then you're talking about
Industrialization in Africa
52:17a market of, you know, close to a billion consumers. And we're talking about a continent
52:22today that has 600 million people who have no access to electricity.
52:27More than 900 million people have no access to a clean cooking system.
52:34Right. We're talking about charcoal and things like that. Very dangerous for health or climate for all kinds
52:39of reason, inefficiency and so on. So there's a huge demand for renewable energy production
52:46here, right? We have all the critical minerals, we have all the human capabilities. What we may lack
52:53is the industrial manufacturing capabilities, the technological know how to actually
52:58manufacture solar panels and wind turbines and so on. So if you're a country on your own,
53:05you're sort of holding a slice of this big bargaining chip, right, with the rest
53:10of the world saying, I have all these critical minerals, but if you put those countries together, you have the full chip.
53:15You say, listen, we have all these critical minerals, we have the demand internally so we can industrialize and actually hit
53:21economies of scale because we have a large market and we have the human capabilities.
53:26Now, we would like to partner with you as in partner, right. Not as a neocolonial
53:32relationship. We have the resources, the capabilities, the market. And we would like
53:37to partner with you whether you are Germany or China or the U.S. or Japan for a 50-50
53:44investment strategy, industrialization strategy, where you bring in the technology. We have
53:49the resources and capabilities and market demand to build the manufacturing
53:55base right here on this continent to serve the needs of the people. So this is not export
54:00oriented industrialization. This is for producing value added and retaining value added
54:06within the same system that country by country, but a group of countries. And this is not I'm
54:12not inventing this. Right. This was done specifically in Europe. I'll give you
54:17the classic example where the European countries wanted to compete
54:22with the U.S. when it comes to what Boeing was doing. Boeing was a global
54:27superpower. Right. In terms of producing manufacturing aircraft and and so on, not just military
54:33technology, civilian technology and so on. So when the Europeans wanted to produce the competitive
54:39equivalent of Boeing for commercial aircraft, there wasn't a single
54:44European country that was able to do it because of economies of scale. Right?
54:49Because you need a large market to industrialize in the high tech sector. So what did they do?
54:55They produced a joint venture system where a whole bunch of European countries use their resources
55:01and capabilities in complementary ways to and use the large market
55:07share that they collectively hold to produce Airbus. Airbus wouldn't
55:12exist today if it wasn't a joint venture of, you know, a dozen plus countries
55:17in Europe. So here we're talking about doing the same thing in the global South context,
55:23not necessarily to compete with Boeing, but we're talking about basic necessities, manufacturing the basic units
55:29that we need for renewable energy, manufacturing, the basic supplies that we need
55:34for transportation system that links up the continent manufacturing, the basic needs
55:40that you need for agricultural investments so that you can acquire a higher degree
55:45of food sovereignty, agricultural sovereignty. So this is a different type of industrialization
55:52from the system. We've started and developed in the 1950s where it's just assembly line. That's not your
55:57industrial policy. When you're doing the assembly line type of work, you're actually contributing
56:02to the industrial policy of Germany, the industrial policy of Canada, because they produce everything
56:07and they assign the task to you and you think that it's your industrial policy, It's not an industrial policy.
56:13So here we're talking about doing exactly what Europe has done, what the U.S.
56:18has done, what Japan has done, what China has done, but doing it in the global South context,
56:24the problem that we face is a problem of vision. It's not a problem
56:29of not having the tools or resources or capabilities
56:34or even the historical examples to follow all of those exist. But we live in a
56:40geopolitical system, especially these days that's emerging after the global
56:45financial crisis, emerging after the COVID crisis that disrupted global supply chains and emerged
56:51after the Russia-Ukraine conflict. We see all the major economic blocs
56:57repositioning themselves. The U.S., China and the European
57:02Union primarily. These are the big, you know, blocs globally
57:08we talk about. You know, the Europeans are specifically literally talking about food
57:13sovereignty, literally talking about energy sovereignty in these terms and literally talking about
57:18technological sovereignty, repatriating critical industries back home.
57:24The U.S. is doing the same. China is trying to catch up on technological sovereignty after the US restrictions.
57:30So we're talking about these three blocks that tend to look into the future.
57:36We're talking about 50 to 100 year vision, right? This is where they see themselves. This is how
57:41they see themselves economically, politically, geo strategically and so on. And they have that long
57:47term vision. They use all the tools they have economically, economic diplomacy
57:52to nudge every country, including countries in the global South, into position,
57:58so to speak, for that vision that they have for themselves. And I always say if you don't have a vision,
58:03long term vision for yourself, you're always going to be part of somebody else's vision. They're going to incentivize
58:08you and nudge you and lock you into a debt trap to put you in that position. So all of these
58:14three blocks, their vision for Africa, for the global South, is more
58:19or less similar. They see the global South as the place for cheap raw materials.
58:25They see the global south, as the place to dump their surplus output from industrialized
58:30countries. They see the global South as the place for exotic tourism destinations, and they see
58:36themselves. They see the global South as the place where you outsource all of these obsolete
58:41technologies for assembly line manufacturing. And that is the position in
58:48which the Global South has been for the last 50 plus years. And that's exactly the position
58:53that the Global South has been in during the colonial times. It's precisely the same position.
58:59So the question for all of us today is, is this a turning point in world history
59:04where we can reposition the global South and balance the global economy economically
59:10and politically and ecologically? Are we going to continue to perpetuate the same colonial structures
59:16and as a result, not be able to meet the challenge of poverty, of climate, of stability
59:22and so on? And that's that's the sort of the clarity of
59:27what is happening allows us to make a decision are we wasting our time or are we serious
59:33about what we're trying to do? Something that a lot of countries in the Global
Unemployment in Africa
59:38South sacrifice in order to perpetuate this system is employment
59:43is there's high unemployment and there's a huge informal economy that people are making,
59:49you know, close to nothing and not meeting their needs. Can we kind of
59:54very quickly talk about how the capacity to invest in employment can be part
1:00:00of the solution to getting us where we need to be? Absolutely. I mean,
1:00:05the good news about the fact that, you know, we have such a significant lack
1:00:11of productive capacity and efficiency and productive capacity in the food system and the energy system
1:00:17and the industrial system is that the solutions that will get us out of these structural traps
1:00:23of the of the debt trap are solutions that happen to be huge generators
1:00:28of employment. So you create millions of jobs to produce the basic needs, the basic pillars
1:00:34for your economy. And you can use something like a job guarantee program
1:00:39you can start with the youth job guarantee or you can start with, you know, a head of household job guarantee
1:00:45and then scale up to a full fledged job guarantee system where you literally have
1:00:50a guaranteed employment with decent wages and benefits but directed and targeted
1:00:56towards areas that are structurally deficient in the economy, that is renewable
1:01:01energy investments. The industrial policy that we just talked about on a Pan-African scale, prioritizing
1:01:09the foundations of your economy as opposed to the system that we have today, which
1:01:14is prioritizing production of goods and services for exports
1:01:19to serve the needs of the global North. So it's about redesigning
1:01:25your employment policy to be in line with that grand vision that we've
1:01:31outlined, which is investing in food sovereignty, energy sovereignty and manufacturing priorities.
1:01:37The the basic observation that most people
1:01:42sort of skip or forget is that you can't have any economy anywhere in the world
1:01:48that can function without food and without fuel. These the two basic pillars
1:01:53that unfortunately many of our countries skip and say, oh, we can import the food, we can import
1:01:59the fuel, let's start producing, you know, assembling those bicycles so we can export them
1:02:04to Germany. Right? Or we can export them to France. But the problem is, you know,
1:02:09how how are you going to do that? Right? How can you support an entire population
1:02:15with imported food or almost an entire population with imported food? So, oh, don't worry about it.
1:02:20We export cash crops, but cash crops, You're no longer can do that because of droughts, because of you've,
1:02:27you know, reduced the fertility of your soul with these pesticides and fertilizers and say, oh, don't worry about it
1:02:32will borrow from the IMF and we'll export even more and then say oh we'll get more tourism.
1:02:37Tourism is is great, right? You create millions of jobs in the tourism industry. You bring people
1:02:43who pay in dollars or in euros. So now you have the dollars in euros you need to import food
1:02:49and to pay for the and so on. Except tourism is actually a structural trap if you don't have food
1:02:54sovereignty and energy sovereignty. Why? Because the millions of tourists you bring, you have to feed them. So you import
1:02:59even more food and high quality food. By the way, for them and the tourists you bring, you have to heat
1:03:04and cool the hotels and transport them. So you have to import even more fuel to support the tourism
1:03:10industry and you have to import all the high end, you know, furniture and equipment for
1:03:16for the entertainment and hotels and restaurants and so on. So you end up structurally adding
1:03:21to your deficit and you're racing to the bottom because we're talking about one country attracting tourism.
1:03:27Right. But you have 100 other 20, 120 other beautiful countries with beautiful
1:03:32people and culture and and beaches and everything who are competing with you. So everybody is racing
1:03:38to the bottom subsidizing the tourism industry, not recognizing that it's
1:03:43actually adding to the structural deficit when it comes to food imports in energy imports.
1:03:49So you end up with these false solutions that don't actually get you out of the trap. They drive
1:03:54you deeper into these structural traps. So this is sort of in a nutshell,
1:04:00a little bit of what we need to pay attention to when we talk about transformative policies
1:04:05on a global scale. So, so to kind of wrap things up and come back
1:04:10full circle to where we started this question that Keynes was facing with
1:04:16the United States and what to do about the world last century, We have this
1:04:22climate crisis. And, you know, one of the things that's come to the forefront
1:04:27of that issue is that the world needs to figure out how to collaborate to solve this this problem. Right.
1:04:34It sounds like certain forces in the United States and other imperial powers
1:04:39have justified the way they've done things from like a zero sum vision of the world
1:04:44whereby, well, if we don't do it for our advantage, someone else is going to do it. And everything
1:04:50is a big competition and it's always survival of the fittest in a very crude sense. Right?
1:04:55How do we think about international finance in a world of climate change
1:05:01from this perspective where we can, you know, think about
1:05:07how to develop sovereignty in other places, to develop monetary sovereignty, to meet
1:05:12human needs, but not in a way where, well, if they do better, we have to do worse, right?
1:05:17Like workers here in the United States are told that if people in Latin America do better, you're going to lose your job.
1:05:24How do we rethink that so that we can have a vision for sustainable prosperity
1:05:30that includes everybody? Well, when when you listen to the
1:05:35conversations today about the debt crisis, for example, in emerging markets,
1:05:41we're talking about a certain amount of debt relief. We're talking about, you know, providing more
1:05:46affordable financing for development, more affordable financing for climate adaptation
1:05:52and climate mitigation. It's mostly for mitigation, very little for adaptation. These days.
1:05:59The idea is that this will be sufficient somehow. But even if you when you take
1:06:05into account that visual that we just looked at earlier, the $2 trillion figure, even if you
1:06:10canceled the entire debt stock of a particular country, of the entire Global
1:06:15South today, that in and of itself will not be sufficient to solve
1:06:21our problems to address the climate crisis. Because if you keep intact
1:06:27the global financial architecture, that is that suction system that takes $2 trillion from the
1:06:32poorest countries, that that's still in motion. Right. To cancel the entire debt the next year, you're
1:06:37still going to have lack of food sovereignty, lack of energy sovereignty, deficient industrial
1:06:43policies. So within ten years, you're going to really humiliate the debt again. You're going to be back
1:06:48in the same position where you can't meet the needs of your people and therefore you can't even invest
1:06:54in the infrastructure that you need to adapt to a warming climate to all of these
1:06:59issues, let alone all the deficiencies we already have on the health front, on the infrastructure front. So
1:07:06that's what I what I call even the most aggressive strategy to cancel the entire
1:07:12that even if we're successful at getting that, it's still not sufficient. Right. So
1:07:17how do you repair this broken system? You repair it literally
1:07:22with a system of reparations, right? You change the global financial
1:07:28architecture that was designed not by us, not for us. Right. It's not going to be
1:07:33the system that will save us today. So you redesign it completely. You rebalance
1:07:39the global economy, literally rebalanced, not in terms of window dressing, but in
1:07:44terms of manufacturing base. So every country or regional bloc should have a mix
1:07:50of industries, of extractive industries, processing,
1:07:55assembly line, high tech, all balanced within the same country,
1:08:00including in the U.S. It's important in the U.S. to have assembly line manufacturing, right.
1:08:06It can't be all high tech and all high paying jobs. It has to be a mix.
1:08:12It has to be agricultural self-sufficiency in the Global South, not just in the U.S.,
1:08:17in Australia, not in Ukraine and Russia and a handful of countries, because we saw what happened.
1:08:22We have one conflict, you have one pandemic, and all of a sudden global supply chains are cut off
1:08:28and people go hungry and the global south. So we have to rebalance the production
1:08:33and manufacturing and consumption and we have to give up also the obsession with growth
1:08:38for its own sake, right? So we have to give up this obsession with GDP and focus on quality of life,
1:08:45Right. Things that enhance quality of life. This is something that Keynes wrote about 100 years ago. He said, Once
1:08:50we've discovered better technologies and we we meet the needs of people, right?
1:08:56Food and fuel and basic quality of life, then we should work
1:09:01less and enjoy life, right, and focus on quality of life type of investment
1:09:07rather than, you know, growth for its own sake. As I say, it's this the ideology of a cancer cell.
1:09:12It will kill you and. It is literally killing the planet and killing us. Right. And it just so happens
1:09:18that all of these investments that enhance quality of life in the U.S. and Europe, our climate
1:09:23consists that they're climate solutions, right? Investing in renewable energy,
1:09:29investing in in the arts, in education, investing
1:09:34in people. So it's the care economy, right? Caring for people, caring for children,
1:09:39caring for the elder, caring for planet. These are high priorities,
1:09:45especially in the global north. The global north doesn't need more consumerism, doesn't need
1:09:50more growth, it needs better quality economic output. And a lot of it
1:09:56is in the care economy. And that means when we redesign
1:10:01the way we produce and consume things in the global north, including transportation, for example,
1:10:06which is an important factor, we have to do it in a very thoughtful way.
1:10:13Thank you so much for, though, for breaking all of this down with us. I want to give you a chance because I know
1:10:19after this pod, a lot of our listeners are going to want to find more of your work. So what are you working on? What would you
1:10:24point our listeners to? Well, you've highlighted this Just Transition report,
1:10:29which I had the pleasure of coauthoring with a group of independent experts working
1:10:35on issues of climate, energy and development policies in Africa.
1:10:41The Report is available on just Transition Africa dot org.
1:10:46You will find me in the next at least a year and a half doing work
1:10:51related to this report. But instead of writing the report, it will be more of the policy advocacy
1:10:58and policy design work across the African continent.
1:11:04After that year and a half, I'll be back to Denison University for my teaching job.
1:11:09I took a two year unpaid leave from Denison to do this type of policy work in Africa,
1:11:15and I'm very excited to work with the with a fantastic team of
1:11:20colleagues who helped produce this. This report.
1:11:25You can find me on social media. I'm pretty active and I usually share everything I do,
1:11:30whether it's webinar or a new piece or an interview. So looking forward to engaging
1:11:36with everybody, especially out there. Thank you so much for all this is great.
1:11:43Thank you. Until next time, Fadhel thank you so much. My pleasure. See you soon.
49:48observation and premise of a transformative economic development policy.
49:53And that's the number one priority to address climate change, to address the climate
50:00crisis, to address the external debt crisis. So a transformative
50:06set of policies will take a country from that end of the spectrum of monetary sovereignty,
50:11graduate to a higher and higher degree of autonomy. And it's not we're not talking about the global system
50:17where some countries have to be here and the other countries have to be there. No, we're talking about a system
50:22where all countries can be on that higher end of the spectrum, and that means rebalancing
50:27the global economy so that countries can actually produce food for themselves, produce energy
50:33for themselves, produce a reasonable, balanced amount of raw materials, semi processed
50:39and high end, you know, finished products in countries or in blocks
50:44of countries within within regions. But the system that we ended up with is completely
50:49bipolar in the sense that it's rich and industrialized and poor
50:54assembly line type of system that food dependent and energy dependent, technologically
51:00dependent and deeply indebted. And once you you accept your position in that system, it's very hard to
Industrial Policy
51:06to undo it. And I'll give you an example, and this is why I always talk about when it comes
51:12to those solutions, investing in food sovereignty, energy sovereignty and a different kind of industrial policy.
51:17The industrial policy part is really hard to do alone, right. And as I mentioned earlier,
51:23because in a small economy, even if you have 20, 30 million consumers, you can't
51:28industrialize. And that's why I always talk about global South cooperation, South-South trade
51:34and industrialization, Pan-African industrial policy, that is, take Africa,
51:39for example, especially today. And in a world where critical minerals are,
51:45you know, 100 times better than gold, right? Critical minerals that we use for all the high
51:50tech equipment, all the renewable energy infrastructure, the batteries, most of the critical minerals
51:55that we're talking about are right here on this continent or in Latin America. So the global South control
52:01is the actual source of of minerals. So take Africa
52:06alone, take a block of, you know, 20, 30 countries that have all the
52:11critical minerals in the southern part of of Africa. And then you're talking about
Industrialization in Africa
52:17a market of, you know, close to a billion consumers. And we're talking about a continent
52:22today that has 600 million people who have no access to electricity.
52:27More than 900 million people have no access to a clean cooking system.
52:34Right. We're talking about charcoal and things like that. Very dangerous for health or climate for all kinds
52:39of reason, inefficiency and so on. So there's a huge demand for renewable energy production
52:46here, right? We have all the critical minerals, we have all the human capabilities. What we may lack
52:53is the industrial manufacturing capabilities, the technological know how to actually
52:58manufacture solar panels and wind turbines and so on. So if you're a country on your own,
53:05you're sort of holding a slice of this big bargaining chip, right, with the rest
53:10of the world saying, I have all these critical minerals, but if you put those countries together, you have the full chip.
53:15You say, listen, we have all these critical minerals, we have the demand internally so we can industrialize and actually hit
53:21economies of scale because we have a large market and we have the human capabilities.
53:26Now, we would like to partner with you as in partner, right. Not as a neocolonial
53:32relationship. We have the resources, the capabilities, the market. And we would like
53:37to partner with you whether you are Germany or China or the U.S. or Japan for a 50-50
53:44investment strategy, industrialization strategy, where you bring in the technology. We have
53:49the resources and capabilities and market demand to build the manufacturing
53:55base right here on this continent to serve the needs of the people. So this is not export
54:00oriented industrialization. This is for producing value added and retaining value added
54:06within the same system that country by country, but a group of countries. And this is not I'm
54:12not inventing this. Right. This was done specifically in Europe. I'll give you
54:17the classic example where the European countries wanted to compete
54:22with the U.S. when it comes to what Boeing was doing. Boeing was a global
54:27superpower. Right. In terms of producing manufacturing aircraft and and so on, not just military
54:33technology, civilian technology and so on. So when the Europeans wanted to produce the competitive
54:39equivalent of Boeing for commercial aircraft, there wasn't a single
54:44European country that was able to do it because of economies of scale. Right?
54:49Because you need a large market to industrialize in the high tech sector. So what did they do?
54:55They produced a joint venture system where a whole bunch of European countries use their resources
55:01and capabilities in complementary ways to and use the large market
55:07share that they collectively hold to produce Airbus. Airbus wouldn't
55:12exist today if it wasn't a joint venture of, you know, a dozen plus countries
55:17in Europe. So here we're talking about doing the same thing in the global South context,
55:23not necessarily to compete with Boeing, but we're talking about basic necessities, manufacturing the basic units
55:29that we need for renewable energy, manufacturing, the basic supplies that we need
55:34for transportation system that links up the continent manufacturing, the basic needs
55:40that you need for agricultural investments so that you can acquire a higher degree
55:45of food sovereignty, agricultural sovereignty. So this is a different type of industrialization
55:52from the system. We've started and developed in the 1950s where it's just assembly line. That's not your
55:57industrial policy. When you're doing the assembly line type of work, you're actually contributing
56:02to the industrial policy of Germany, the industrial policy of Canada, because they produce everything
56:07and they assign the task to you and you think that it's your industrial policy, It's not an industrial policy.
56:13So here we're talking about doing exactly what Europe has done, what the U.S.
56:18has done, what Japan has done, what China has done, but doing it in the global South context,
56:24the problem that we face is a problem of vision. It's not a problem
56:29of not having the tools or resources or capabilities
56:34or even the historical examples to follow all of those exist. But we live in a
56:40geopolitical system, especially these days that's emerging after the global
56:45financial crisis, emerging after the COVID crisis that disrupted global supply chains and emerged
56:51after the Russia-Ukraine conflict. We see all the major economic blocs
56:57repositioning themselves. The U.S., China and the European
57:02Union primarily. These are the big, you know, blocs globally
57:08we talk about. You know, the Europeans are specifically literally talking about food
57:13sovereignty, literally talking about energy sovereignty in these terms and literally talking about
57:18technological sovereignty, repatriating critical industries back home.
57:24The U.S. is doing the same. China is trying to catch up on technological sovereignty after the US restrictions.
57:30So we're talking about these three blocks that tend to look into the future.
57:36We're talking about 50 to 100 year vision, right? This is where they see themselves. This is how
57:41they see themselves economically, politically, geo strategically and so on. And they have that long
57:47term vision. They use all the tools they have economically, economic diplomacy
57:52to nudge every country, including countries in the global South, into position,
57:58so to speak, for that vision that they have for themselves. And I always say if you don't have a vision,
58:03long term vision for yourself, you're always going to be part of somebody else's vision. They're going to incentivize
58:08you and nudge you and lock you into a debt trap to put you in that position. So all of these
58:14three blocks, their vision for Africa, for the global South, is more
58:19or less similar. They see the global South as the place for cheap raw materials.
58:25They see the global south, as the place to dump their surplus output from industrialized
58:30countries. They see the global South as the place for exotic tourism destinations, and they see
58:36themselves. They see the global South as the place where you outsource all of these obsolete
58:41technologies for assembly line manufacturing. And that is the position in
58:48which the Global South has been for the last 50 plus years. And that's exactly the position
58:53that the Global South has been in during the colonial times. It's precisely the same position.
58:59So the question for all of us today is, is this a turning point in world history
59:04where we can reposition the global South and balance the global economy economically
59:10and politically and ecologically? Are we going to continue to perpetuate the same colonial structures
59:16and as a result, not be able to meet the challenge of poverty, of climate, of stability
59:22and so on? And that's that's the sort of the clarity of
59:27what is happening allows us to make a decision are we wasting our time or are we serious
59:33about what we're trying to do? Something that a lot of countries in the Global
Unemployment in Africa
59:38South sacrifice in order to perpetuate this system is employment
59:43is there's high unemployment and there's a huge informal economy that people are making,
59:49you know, close to nothing and not meeting their needs. Can we kind of
59:54very quickly talk about how the capacity to invest in employment can be part
1:00:00of the solution to getting us where we need to be? Absolutely. I mean,
1:00:05the good news about the fact that, you know, we have such a significant lack
1:00:11of productive capacity and efficiency and productive capacity in the food system and the energy system
1:00:17and the industrial system is that the solutions that will get us out of these structural traps
1:00:23of the of the debt trap are solutions that happen to be huge generators
1:00:28of employment. So you create millions of jobs to produce the basic needs, the basic pillars
1:00:34for your economy. And you can use something like a job guarantee program
1:00:39you can start with the youth job guarantee or you can start with, you know, a head of household job guarantee
1:00:45and then scale up to a full fledged job guarantee system where you literally have
1:00:50a guaranteed employment with decent wages and benefits but directed and targeted
1:00:56towards areas that are structurally deficient in the economy, that is renewable
1:01:01energy investments. The industrial policy that we just talked about on a Pan-African scale, prioritizing
1:01:09the foundations of your economy as opposed to the system that we have today, which
1:01:14is prioritizing production of goods and services for exports
1:01:19to serve the needs of the global North. So it's about redesigning
1:01:25your employment policy to be in line with that grand vision that we've
1:01:31outlined, which is investing in food sovereignty, energy sovereignty and manufacturing priorities.
1:01:37The the basic observation that most people
1:01:42sort of skip or forget is that you can't have any economy anywhere in the world
1:01:48that can function without food and without fuel. These the two basic pillars
1:01:53that unfortunately many of our countries skip and say, oh, we can import the food, we can import
1:01:59the fuel, let's start producing, you know, assembling those bicycles so we can export them
1:02:04to Germany. Right? Or we can export them to France. But the problem is, you know,
1:02:09how how are you going to do that? Right? How can you support an entire population
1:02:15with imported food or almost an entire population with imported food? So, oh, don't worry about it.
1:02:20We export cash crops, but cash crops, You're no longer can do that because of droughts, because of you've,
1:02:27you know, reduced the fertility of your soul with these pesticides and fertilizers and say, oh, don't worry about it
1:02:32will borrow from the IMF and we'll export even more and then say oh we'll get more tourism.
1:02:37Tourism is is great, right? You create millions of jobs in the tourism industry. You bring people
1:02:43who pay in dollars or in euros. So now you have the dollars in euros you need to import food
1:02:49and to pay for the and so on. Except tourism is actually a structural trap if you don't have food
1:02:54sovereignty and energy sovereignty. Why? Because the millions of tourists you bring, you have to feed them. So you import
1:02:59even more food and high quality food. By the way, for them and the tourists you bring, you have to heat
1:03:04and cool the hotels and transport them. So you have to import even more fuel to support the tourism
1:03:10industry and you have to import all the high end, you know, furniture and equipment for
1:03:16for the entertainment and hotels and restaurants and so on. So you end up structurally adding
1:03:21to your deficit and you're racing to the bottom because we're talking about one country attracting tourism.
1:03:27Right. But you have 100 other 20, 120 other beautiful countries with beautiful
1:03:32people and culture and and beaches and everything who are competing with you. So everybody is racing
1:03:38to the bottom subsidizing the tourism industry, not recognizing that it's
1:03:43actually adding to the structural deficit when it comes to food imports in energy imports.
1:03:49So you end up with these false solutions that don't actually get you out of the trap. They drive
1:03:54you deeper into these structural traps. So this is sort of in a nutshell,
1:04:00a little bit of what we need to pay attention to when we talk about transformative policies
1:04:05on a global scale. So, so to kind of wrap things up and come back
1:04:10full circle to where we started this question that Keynes was facing with
1:04:16the United States and what to do about the world last century, We have this
1:04:22climate crisis. And, you know, one of the things that's come to the forefront
1:04:27of that issue is that the world needs to figure out how to collaborate to solve this this problem. Right.
1:04:34It sounds like certain forces in the United States and other imperial powers
1:04:39have justified the way they've done things from like a zero sum vision of the world
1:04:44whereby, well, if we don't do it for our advantage, someone else is going to do it. And everything
1:04:50is a big competition and it's always survival of the fittest in a very crude sense. Right?
1:04:55How do we think about international finance in a world of climate change
1:05:01from this perspective where we can, you know, think about
1:05:07how to develop sovereignty in other places, to develop monetary sovereignty, to meet
1:05:12human needs, but not in a way where, well, if they do better, we have to do worse, right?
1:05:17Like workers here in the United States are told that if people in Latin America do better, you're going to lose your job.
1:05:24How do we rethink that so that we can have a vision for sustainable prosperity
1:05:30that includes everybody? Well, when when you listen to the
1:05:35conversations today about the debt crisis, for example, in emerging markets,
1:05:41we're talking about a certain amount of debt relief. We're talking about, you know, providing more
1:05:46affordable financing for development, more affordable financing for climate adaptation
1:05:52and climate mitigation. It's mostly for mitigation, very little for adaptation. These days.
1:05:59The idea is that this will be sufficient somehow. But even if you when you take
1:06:05into account that visual that we just looked at earlier, the $2 trillion figure, even if you
1:06:10canceled the entire debt stock of a particular country, of the entire Global
1:06:15South today, that in and of itself will not be sufficient to solve
1:06:21our problems to address the climate crisis. Because if you keep intact
1:06:27the global financial architecture, that is that suction system that takes $2 trillion from the
1:06:32poorest countries, that that's still in motion. Right. To cancel the entire debt the next year, you're
1:06:37still going to have lack of food sovereignty, lack of energy sovereignty, deficient industrial
1:06:43policies. So within ten years, you're going to really humiliate the debt again. You're going to be back
1:06:48in the same position where you can't meet the needs of your people and therefore you can't even invest
1:06:54in the infrastructure that you need to adapt to a warming climate to all of these
1:06:59issues, let alone all the deficiencies we already have on the health front, on the infrastructure front. So
1:07:06that's what I what I call even the most aggressive strategy to cancel the entire
1:07:12that even if we're successful at getting that, it's still not sufficient. Right. So
1:07:17how do you repair this broken system? You repair it literally
1:07:22with a system of reparations, right? You change the global financial
1:07:28architecture that was designed not by us, not for us. Right. It's not going to be
1:07:33the system that will save us today. So you redesign it completely. You rebalance
1:07:39the global economy, literally rebalanced, not in terms of window dressing, but in
1:07:44terms of manufacturing base. So every country or regional bloc should have a mix
1:07:50of industries, of extractive industries, processing,
1:07:55assembly line, high tech, all balanced within the same country,
1:08:00including in the U.S. It's important in the U.S. to have assembly line manufacturing, right.
1:08:06It can't be all high tech and all high paying jobs. It has to be a mix.
1:08:12It has to be agricultural self-sufficiency in the Global South, not just in the U.S.,
1:08:17in Australia, not in Ukraine and Russia and a handful of countries, because we saw what happened.
1:08:22We have one conflict, you have one pandemic, and all of a sudden global supply chains are cut off
1:08:28and people go hungry and the global south. So we have to rebalance the production
1:08:33and manufacturing and consumption and we have to give up also the obsession with growth
1:08:38for its own sake, right? So we have to give up this obsession with GDP and focus on quality of life,
1:08:45Right. Things that enhance quality of life. This is something that Keynes wrote about 100 years ago. He said, Once
1:08:50we've discovered better technologies and we we meet the needs of people, right?
1:08:56Food and fuel and basic quality of life, then we should work
1:09:01less and enjoy life, right, and focus on quality of life type of investment
1:09:07rather than, you know, growth for its own sake. As I say, it's this the ideology of a cancer cell.
1:09:12It will kill you and. It is literally killing the planet and killing us. Right. And it just so happens
1:09:18that all of these investments that enhance quality of life in the U.S. and Europe, our climate
1:09:23consists that they're climate solutions, right? Investing in renewable energy,
1:09:29investing in in the arts, in education, investing
1:09:34in people. So it's the care economy, right? Caring for people, caring for children,
1:09:39caring for the elder, caring for planet. These are high priorities,
1:09:45especially in the global north. The global north doesn't need more consumerism, doesn't need
1:09:50more growth, it needs better quality economic output. And a lot of it
1:09:56is in the care economy. And that means when we redesign
1:10:01the way we produce and consume things in the global north, including transportation, for example,
1:10:06which is an important factor, we have to do it in a very thoughtful way.
1:10:13Thank you so much for, though, for breaking all of this down with us. I want to give you a chance because I know
1:10:19after this pod, a lot of our listeners are going to want to find more of your work. So what are you working on? What would you
1:10:24point our listeners to? Well, you've highlighted this Just Transition report,
1:10:29which I had the pleasure of coauthoring with a group of independent experts working
1:10:35on issues of climate, energy and development policies in Africa.
1:10:41The Report is available on just Transition Africa dot org.
1:10:46You will find me in the next at least a year and a half doing work
1:10:51related to this report. But instead of writing the report, it will be more of the policy advocacy
1:10:58and policy design work across the African continent.
1:11:04After that year and a half, I'll be back to Denison University for my teaching job.
1:11:09I took a two year unpaid leave from Denison to do this type of policy work in Africa,
1:11:15and I'm very excited to work with the with a fantastic team of
1:11:20colleagues who helped produce this. This report.
1:11:25You can find me on social media. I'm pretty active and I usually share everything I do,
1:11:30whether it's webinar or a new piece or an interview. So looking forward to engaging
1:11:36with everybody, especially out there. Thank you so much for all this is great.
1:11:43Thank you. Until next time, Fadhel thank you so much. My pleasure. See you soon.
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