Propagate By Poison: The Landscape of China's Rural-Urban Dichotomy

noemamag.com

For thousands of years, the agrarian heartlands were the very heartbeat of Chinese civilization. Writing years before the establishment of the first imperial dynasty and long before the industrialization of China, reformer Shang Yang deduced that harnessing the plow was the path to harnessing power in the context of the tumultuous Warring States era. His recommendation of “emphasizing agriculture and restraining business” to the Qin state passed down through the subsequent dynasties. Though Shang Yang’s reforms were a boon to Qin productivity, state wealth, and facilitated the establishment of the first Chinese empire, modern China has chosen to address its current challenges with a different approach. While the contrast between agriculture and business remains intact, the growing chasm between the rural and urban worlds may have more negative political ramifications than positive ones in the current Chinese political economy. 

Today, the People’s Republic of China’s wealth and power can be found concentrated on the coasts, which have rapidly developed since the 1978 implementation of an “open door policy” ushered in a frenzy of technology absorption and economic entwinement with the world market, marked especially by special economic zone development. Around this time, prevailing perceptions in China conceived the rural sector and the developed, urbanized one as rather disjointed, with economists and policymakers at the forefront of the Coastal Development Strategy envisioning an increased interdependence between the two spheres. The last phase within this roughly 20 to 30 year plan prescribed a leveraging of the wealth derived from industry to develop the agricultural inland areas. 

More than 30 years have gone by since this framework was first introduced, and the integration of urban and rural prosperity leaves much to be desired. Income inequality, disparity in education opportunities, and stark differences in market participation show the huge gaps that persist between the urban and rural worlds of the same nation. This sharp contrast is due largely in part to the Hukou system, a policy set by the central government under Mao in 1958, which local governments possess the authority to enforce today. Under this system, citizens must register their birthplace as their permanent residence and can only change this registration by obtaining a special permit. Local governments set numerous bureaucratic hurdles for would-be migrants to jump over in order to control demographics and human capital. Given that the typical direction of migration in China is from poorer, rural areas to wealthier, urban ones, newcomers to the metropolises have an especially onerous time obtaining permits, and therefore frequently find themselves barred from accessing public social support services and stalled in their quest for upward mobility. As a result, the polarization between urbanites and country-dwellers persists. 

Sowing Division Under Maoist Socialism 

Mao Zedong, a so-called son of the soil, led his army of peasants to victory against the Chinese Nationalist Party and ushered in an age of “Socialist Serfdom.” On an ideological level, Maoism is grounded in the quest for equality, in the destruction of the hierarchical feudal ways and days of old. In reality, the disenfranchisement of Chinese rustics is in many cases firmly rooted in Mao-era policies. As with many other facets of modern Chinese society, stepping out of the shadow cast by Chairman Mao’s legacy poses a serious challenge to untangling the political, economic, and social aggravations of this fissure. 

From the very beginning of the Chinese Communist Party’s (CCP) rule, cities have been an exceptional pressure point on regime stability. For most of the Chinese Civil War, cities stayed loyal to the Chinese Nationalist Party, and before that, were largely beholden to foreign interests and exploitation. The CCP desperately needed to grab the reins of these hotspots of crime and dissension, and they perceived the influx of post-civil war migration as a key source of destabilization. Hence, while the immediate aftermath of the war saw the pattern of urban migration that one might expect in the wake of major upheaval, the CCP began to devote serious time and effort to taming both the urban and rural populations- typically by offering the former a carrot and the latter a stick. For example, the countryside was negatively affected by the implementation of the Unified Purchase and Unified Sale system in 1953 by the state setting the price at which it would buy the mandated quota of crops, which naturally came under market value. The government then distributed the purchased food in urban centers, lowering the cost of living there and thereby necessitating more stringent migration policies. Consequently, the hukou system came into effect in 1958, granting governments the power to control people’s movements. 

 The government promptly began to exercise its newfound powers by recruiting millions to work in the factories meant to fuel the Great Leap Forward. This leap landed with a faceplant, and tens of millions of workers were deported back to the countryside, where tens of millions of people subsequently starved to death. The consequences of this were not only that migration to cities became even more difficult, but also that rural areas were increasingly left to fend for themselves. Depressed by unemployment and all the social ills that entails, rural regions were mandated by Mao to dust themselves off and get to building infrastructure that would boost agricultural production. That surplus, of course, would be handed over to the government at cheap prices to then be exported overseas in order to fund industrial development. The Mao era undoubtedly exhibited urban bias, a bias which persists today. Back then, as is largely the case now, urbanites enjoyed many more public goods and social services than their rural counterparts, such as education, maternity leave, pensions, medical care, and housing assistance. Moreover, the welfare provided to urban residents was in no small part funded by the labor of farmworkers, as by some estimates, the practice of buying agricultural goods at low prices resulted in the government transferring around 534 billion yuan away from the rural sector between 1955 and 1985. 

It might be curious that for all the CCP is anxious about discontentment breeding regime instability and achieving social harmony, their long-held practice of neglecting the well-being of the rustics continues to drive a wedge in between the urban and rural populaces. But this is not without consequences; dissatisfaction on both sides has long driven protests and government insecurity, perhaps hinting at an overall pattern of poison from within. 

Seedlings of Social Unrest

So what about the reform era? Surely, the government after Mao’s death saw some improvement in the lives of farmers. And indeed, while fiscal policy did raise the price at which the government purchased agricultural goods, thereby benefiting rural areas, the government quickly caved to pressure from urbanites, who sought to maintain their relative advantages. As was the case under Mao, the CCP feared the political repercussions of disgruntled city-dwellers and thus resumed the pattern whereby urban citizens cowed the government into maintaining their higher standards of living. 

Even when the government chose to respond to political unrest with military action, such as in 1989 when inflation racked the urban cost of living to the point of protest, the follow-up included amendments to the economic policies in order to quell urban discontent. Furthermore, although the reform period is known for walking back the controlled economy model, pressure for urban protections led to fund transfers to subsidize struggling state-owned enterprises. 

For all that the reform period championed economic growth, the government considered it worthwhile to sacrifice economic efficiency in order to ensure regime stability. At the same time, the CCP greatly relies on its ability to deliver on economic outcomes in order to keep the peace. By centering the economic heart of China in urban centers, and devoting significant resources to keeping that heart beating, even at the expense of rural reforms, the government has trapped itself in an unsustainable cycle. With every turn of this cycle, the second-class status of rural citizens becomes more entrenched.

To better compare, consider the CCP response to rural outcry. In the 2000s, the government continued to take over land for urban development with an explicit lack of regard for local input, and these protests were punctuated with a 2010 demand to end the Hukou system. At the time, Premier Wen Jiabao had alluded to the possibility of dismantling the system, but when the government had to respond to the clamor by suppressing circulation of these sentiments, he quickly changed his messaging to suggest more moderate changes. 

Herein lies the tension between social stability and economic improvements. To some degree, the economy is an ever-growing vine attached to the tree of Chinese societal harmony. The vine enhances the outward vibrancy of the tree, bestowing a majestic weight, and to remove the vine would peel off the protective bark with it. And yet, cultivating the vine has allowed it to grow beyond the tree’s control, consuming the life force of its host. 

This Season’s Harvest 

While the economic risks the CCP continues to run by not addressing the growing gulf between rural and urban residents are surely troubling, it is important to acknowledge that the divisions Hukou creates have a human impact on real people’s hopes and dreams and happiness. Where someone lives and what industry they work in is part of a much greater story about what they call home. 

The families of those migrants who attempt to make it in the metropolises despite their rural Hukou status are left behind on one side of the river while their loved ones desperately try to swim across. This has led to the phenomena of “left behind children,” a vulnerable group of youths who are emotionally, mentally, and academically delayed while their parents attempt to escape rural poverty. As an earlier section mentioned Socialist Serfdom, whereby Chinese society under Mao saw the systematic treatment of rural residents as the underclass, it appears this lowest class has split off into an additional caste, made up of migrants. While they do not have the same privileges as urban Hukou holders, they do have access to the amenities of city living and in general enjoy higher standards of living compared to the countryside. This comes at the cost of the families they leave behind, as Hukou restrictions limit access to both childcare and quality education. It is estimated that 1 in 5 children in China are “Left Behind,” unable to see one or more of their parents for most of the year.  

On the flipside of this, the fallout from the Covid pandemic and the subsequent rise in youth unemployment saw numerous remarks made in the spring of this year regarding a push to return China’s youths to the countryside. Are we seeing the start of a new wave of “rustication”? President Xi has recently encouraged young professionals to focus on reenergizing rural areas, to convert their urban-bred talents into countryside innovation. The idea seems to have had a decent reception, with reports by the Chinese government of increased migration to rural parts leading to improved agricultural production and higher quality rural tourism. Social media has likely played a role in idealizing farm life, an Asian counterpart to the popular cottagecore aesthetic. However, the idyllic pastoral life is not at all like influencers portray, which the young rusticated urbanites soon discover. The comforts and economic opportunities of the city still hold considerable sway over someone’s choice of where to live, especially if that person is born with an urban Hukou and thus has greater options available. These accounts make it difficult to believe at face value CCP messaging about the great enthusiasm the youth supposedly have for rural life and reads more like an attempt to preempt social turmoil brought on by idle, disillusioned young people. The government’s decision to stop reporting the rate of youth unemployment altogether makes the whole narrative even more suspect. 

This sense of disillusionment is growing stronger especially in the housing market, which like many aspects of the Chinese economy is an incoming crisis of the government’s own making. The housing market remains a sector under immense government oversight if not outright control, and the current issues it poses is in no small part linked to the Hukou system. Hukou is an instrument with which the government can control demand, and this leads to neglect of the supply side. Moreover, poor property tax systems render them an inadequate means of adjusting housing prices. And of course, in spite of the difficulties the government sets in citizens’ ways, the advantages of living in a city are still much greater in many cases than the difficulties. Decades of urban bias have built myriad social services, and even for those migrants who do not have the urban Hukou status to take full advantage of welfare, having some benefits is better than none. Although, because of the aforementioned informal caste system, migrants tend to be relegated to renting, which comes with significantly fewer benefits than home ownership. Home ownership is made even more valuable by the fact that it often dictates who gets priority to send their children to the best schools. Sometimes, even the length of time a person has resided in a school district can give them the upper hand in admissions. 

In essence, the urban populace has been pitted against one another to fight for limited housing, but the government has made housing so necessary to access the full benefits of being an urban resident that demand climbs even as the fight becomes more fatiguing. The Hukou system ostensibly seeks to curb the demand, but in fact it only aggravates these various points of contention.

The housing crisis is a symptom of the Hukou system failing both Chinese citizens and the Chinese government. But while the former would likely be better off with the abolition of the system, the latter clings to any means of controlling its people. Some have suggested that the government simply does not know how to bring Hukou to an end without sparking an upheaval that would threaten the very stability it is trying to maintain, while others speculate that this is a sign of local governments flouting central government recommendations. Perhaps it is instead correct, if radical, to say that the system of Chinese government itself is unsustainable, constantly locked in desperate need to bolster prosperity and keep a leash on the beast it scrambles to feed.   

  With this understanding, the urban-rural divide is clearly antithetical to the themes of social harmony and cohesion that the CCP supposedly desires. And yet, to stay in power the CCP has had to exacerbate this divide time and again or risk its grip on power. It seems that this contrast is useful neither for economic efficiency nor for stability, and yet without it those goals could not stay afloat. There is a Chinese saying that warns not to drink poison to slake one’s thirst. The poison here is the polarization between the urban and rural worlds, while the Chinese government thirsts for authority and economic strength. 

The Development of the Modern-Mauritian State

moderndiplomacy.eu

The small island nation of Mauritius is one of the world’s top destinations for a luxury vacation. Its natural beauty makes it a hot spot for the wealthy communities of Europe and Asia alike; an appeal that draws in around 1.4 million people every year, or about 110% of the country’s population (World Bank). Visitors of Mauritius, lacking any political research, will likely be unaware that the country represents a positive rarity in African politics: a relatively well-functioning democracy. Freedom House, a think-tank that measures democracy around the world, gives Mauritius and 86 out of 100 on their scoring of the country (100 being a full democracy, and 0 being fully undemocratic) (Freedom House). It has perfect civil liberties score and has all but 4 points to have perfect political rights. Its impressive score makes it the most democratic country in Africa, and even ahead of well-recognized democracies such as South Korea and the United States. The country also has the third highest GDP per capita in Africa, at roughly $23,000 (World Bank).  Its political system is characterized by a competitive system with regular elections and a respect for, or at least a tolerance of the rich ethnic diversity that the island possess. The country’s credentials are impressive but are both underappreciated and under reported. This paper will not only attempt to highlight their successes, but also argue that they are the causes of a strong political system that has consistently promoted and adopted policy that has burgeoned economic growth, and used its revenue to expand the political system, all while preserving and expanding political rights for ethnic minorities. I will also argue that relics of the Mauritian colonial structure, while most certainly impeding the country’s political, social, and economic development by subjecting the population to tyrannic rule that fostered a system of slavery and oppression, did nonetheless serve as a foundational starting point, from which the country’s government and economy flourished.  

Mauritian history is much like that of the rest of colonial Africa. Initially established as a Dutch trading port in 1598 (Lange), it was quickly deserted and found itself under the rule of French colonialists. Much of French rule was characterized by a rapid economic development of the island. Sugar production, a staple of colonial trade, was expanded massively. Plantations were created, which led to the importation of slaves from continental Africa. France established Mauritius as key colony in the production of sugar, which led to its transfer of ownership from the French to the British, in the Treaty of Paris in 1814 that ended the Napoleonic Wars. When the British abolished slavery on the island, as it took similar steps in many of its other colonies, the country’s economy still required laborers to work on the ever-growing sugar plantations that gave Mauritius its economic importance. To solve this problem, the British imported indentured workers from its colonies in India and China, who were effectively slaves as they lacked basic political and civil liberties and were sent to Mauritius against their will. Nevertheless, their arrival on the island in the hundreds of thousands forever changed the demographic makeup of the country (Lange).  

As Britain and much of Europe decolonialized in the aftermath of World War II, Mauritius too gained its independence from the British on March 12th, 1968. The country almost immediately adopted a Westminster-like parliamentary form of government, with the position of Prime Minister serving as the head of government, and the more ceremonial role of President serving as the head of state. The legislative body had 70 elected seats. The country’s constitution granted all people equal political representation regardless of their ethnic background, a key facet in establishing the country as a democracy given the diversity in the country. The country’s political system was reflective of this constitutional detail, as well as the country’s diversity, as it established several political parties that represented its various groups. None has been influential in the politics of the country then the Mauritian Labor Party, which was initially formed to represent agricultural workers in wage negotiations with the British. The government has historically maintained a strong social safety net that has prevented poverty and has limited inequality. This system has several functions that make it effective. For the elderly, the government provides a comprehensive pension program that roughly equates to 70 dollars a month. The program is incredibly popular amongst Mauritians, and politicians have been punished electorally for threatening to gut the program (Osei-Hwedie). The Mauritian government also provides free healthcare for all its citizens and pays for both primary and secondary schooling for its children. This keeps kids in school until they are at least 16 years old. The country has two institutions of higher education to serve those with higher academic pursuits. Mauritian students also frequent top schools in Europe and the United States. The plethora of social programs offered by the Mauritian government is made possible by an ever-growing economy that provides much of the funding for the national government (Mehta).  

The country’s economic development ran parallel its political development. Given the country’s natural beauty, tourism emerged as a large segment of the country’s economy. What started with just 1,000 visitors annually at the end of decolonialization, swelled to around 600,000 in the late 1980’s and currently stands at over a million every year.  While tourism flourished, the Mauritian government continued its former colonial exportation of sugar, this time leveraging its strong relationships with France and Britain to negotiate fixed purchasing prices that were higher than the market rate. In addition to an inflated purchase price, Mauritius also levied a roughly 20% tariff on the export, furthering their revenues from the crop . This helped maintain low-skilled labor jobs. Mauritius also expanded into textile production, specifically producing sportswear. This furthered their integration with European markets and served to diversity the economy (Sandbrook). The government established an Export Processing Zone (EPZ) which provides companies with a cheaper means of importing machinery for their goods. The economy has since diversified into banking and businesses and has begun investing in continental African firms (Industrial Free Zones Boost Mauritius' export-led manufacturing). 

Mauritius owes its success to many different factors. The first of which is the strong relationship between its government and its economy. The country has had a fluid relationship between its political and economic institutions, that has been relatively free of corruption. The Mauritian government has exercised its authority on economic matters well, implementing tariffs and negotiating fixed prices for goods, both of which benefited the country’s economy. Additionally, the country’s system of government was designed to be inclusive.  The electoral system encourages the nomination of minority candidates to ensure that the island diverse ethnic groups are represented in politics. The system goes as far as to appoint eight loosing candidates to the legislative branch to ensure representation is maintained. The government also required that parties in the legislative branch form coalition governments. Since each party traditionally represented specific ethnic groups in the country, the coalition requirement functioned to erase the ethnic differences between each party.  

Additionally, the Mauritian governmental structure under colonial rule was much different than the rest of British-controlled Africa. Unlike other colonies in Africa, Mauritius had a much more developed system of governance that included a strong bureaucratic structure. As such the government had 4 times as much state revenue, 3 times as many police officers, and 10 times as many judges as the average British-governed African colony. They had a generally system of state infrastructure, that mimicked Singapore’s government, which too was a post-colonial success. The British also allowed Mauritians to participate in this government, with around 60% of workers in the Mauritian government being Mauritian. Once independence was achieved, Mauritians inherited a much stronger political system then their continental African counterparts. Though colonialization most certainly harmed Mauritian economic and political development, the form of government Britain established made it easier for the country to begin its process of independent political advancement.  

Another reason Mauritius found political and economic success was the division of land that took place in and around its independence. As sugar plantations were dissolved as colonial bosses left the country, the land was reclaimed by the local inhabitants, forming strong village communities. This empowered local leaders, who now possessed land from which they could harvest sugar and lead more productive lives. It also served as the foundation for the development of local political parties, which served to diversity and expand the reach of the Mauritian political system (Lange).  

In conclusion, the development of the modern-Mauritian state is rooted in a strong political system that catered to the needs of the economy, creating a strong flow of revenue that was used to fund social programs.  

Works Cited 

“BTI 2022 Mauritius Country Report.” BTI 2022, https://bti-project.org/en/reports/country-report/MUS#pos2.  

“GDP per Capita (Current US$).” Data, https://data.worldbank.org/indicator/NY.GDP.PCAP.CD.  

“Industrial Free Zones Boost Mauritius' Export-Led Manufacturing.” UNIDO, https://www.unido.org/stories/industrial-free-zones-boost-mauritius-export-led-manufacturing.  

“International Tourism, Number of Arrivals - Mauritius.” Data, https://data.worldbank.org/indicator/ST.INT.ARVL?locations=MU.  

Lange, Matthew. “Embedding the Colonial State: A Comparative-Historical Analysis of State Building and Broad-Based Development in Mauritius.” Social Science History, vol. 27, no. 3, 2003, pp. 397–423. JSTOR, http://www.jstor.org/stable/40267814. Accessed 24 Feb. 2023.  

“Mauritius: Freedom in the World 2022 Country Report.” Freedom House, https://freedomhouse.org/country/mauritius/freedom-world/2022.  

Mehta, Rani. “Ethnicity, Ethnic Relations and Development of Mauritian Society.” Indian Anthropologist, vol. 45, no. 1, 2015, pp. 47–60. JSTOR, http://www.jstor.org/stable/43899415. Accessed 24 Feb. 2023.  

Osei-Hwedie, Bertha Z. “Successful Development and Democracy in Africa: the Case of Botswana and Mauritius.” Il Politico, vol. 65, no. 1 (192), 2000, pp. 73–90. JSTOR, http://www.jstor.org/stable/24005439. Accessed 24 Feb. 2023.  

Sandbrook, Richard. “Origins of the Democratic Developmental State: Interrogating Mauritius.” Canadian Journal of African Studies / Revue Canadienne Des Études Africaines, vol. 39, no. 3, 2005, pp. 549–581. JSTOR, http://www.jstor.org/stable/25067498. Accessed 24 Feb. 2023.  

“Why Africa's Island-States Are Generally Freer.” The Economist, The Economist Newspaper, https://www.economist.com/middle-east-and-africa/2021/06/26/why-africas-island-states-are-generally-freer.  

“BTI 2022 Mauritius Country Report.” BTI 2022, https://bti-project.org/en/reports/country-report/MUS#pos2.  

“GDP per Capita (Current US$).” Data, https://data.worldbank.org/indicator/NY.GDP.PCAP.CD.  

“Industrial Free Zones Boost Mauritius' Export-Led Manufacturing.” UNIDO, https://www.unido.org/stories/industrial-free-zones-boost-mauritius-export-led-manufacturing.  

“International Tourism, Number of Arrivals - Mauritius.” Data, https://data.worldbank.org/indicator/ST.INT.ARVL?locations=MU.  

Lange, Matthew. “Embedding the Colonial State: A Comparative-Historical Analysis of State Building and Broad-Based Development in Mauritius.” Social Science History, vol. 27, no. 3, 2003, pp. 397–423. JSTOR, http://www.jstor.org/stable/40267814. Accessed 24 Feb. 2023.  

“Mauritius: Freedom in the World 2022 Country Report.” Freedom House, https://freedomhouse.org/country/mauritius/freedom-world/2022.  

Mehta, Rani. “Ethnicity, Ethnic Relations and Development of Mauritian Society.” Indian Anthropologist, vol. 45, no. 1, 2015, pp. 47–60. JSTOR, http://www.jstor.org/stable/43899415. Accessed 24 Feb. 2023.  

Osei-Hwedie, Bertha Z. “Successful Development and Democracy in Africa: the Case of Botswana and Mauritius.” Il Politico, vol. 65, no. 1 (192), 2000, pp. 73–90. JSTOR, http://www.jstor.org/stable/24005439. Accessed 24 Feb. 2023.  

Sandbrook, Richard. “Origins of the Democratic Developmental State: Interrogating Mauritius.” Canadian Journal of African Studies / Revue Canadienne Des Études Africaines, vol. 39, no. 3, 2005, pp. 549–581. JSTOR, http://www.jstor.org/stable/25067498. Accessed 24 Feb. 2023.  

“Why Africa's Island-States Are Generally Freer.” The Economist, The Economist Newspaper, https://www.economist.com/middle-east-and-africa/2021/06/26/why-africas-island-states-are-generally-freer.  

The World Cup: Sustainability, Human Rights and the Economy

cnn.com

Every four years, spectators from around the world come together to celebrate their passion for soccer, more importantly, their love for their national team. The FIFA World Cup 2022 has been the most anticipated event for soccer fans for the past four years, as many wonder who will win the championship and dethrone France as the world champion. This year - and for the first time - soccer fans will gather in Qatar from mid-November to mid-December, marking the first time a World Cup will take place during the winter season. The decision was made in 2010 after the county won a ballot of Fifa's 22 executive members. The country has been preparing ever since for this highly anticipated international competition. However, as Qatar prepares to welcome hundreds of thousands of fans, questions about sustainability, human rights, and regulations are raised. 

Qatar is a country in the Middle East; although small, the current population of Qatar is 2,995,736 as of Sunday, November 12th, 2022. Qatar has the world's third-largest proven natural gas reserve and the second-largest natural gas exporter. As a small oil country, Qatar has been preparing to host the FIFA World Cup Qatar 2022 for the last 12 years, a competition expected to generate a lot of revenue. However, Qatar's economy is expected to slow down after the World Cup. Indeed, the country has estimated the influx of 1.2 million visitors will add $17 billion to its Gross Domestic Product. However, after the World Cup, tourism and consumption will decrease, which will slow down the economy of Qatar, a very well-known country for its oil economy.

It was in 2010 that FIFA Executive Members designated Qatar to host the World Cup in 2022. As a result, the country has had to make massive investments to host this five-week competition. Qatar has spent $200 billion on infrastructures and other development projects since winning the bid to host the World Cup. To build these infrastructures, the country employed migrant workers, which exposed the country's history of human rights violations. These migrant workers from Nepal, India, Pakistan, and Bangladesh came to Qatar because they lacked job opportunities in their home country. In order to build such infrastructures for the World Cup, Qatar needed the help of migrant workers who seek better opportunities and higher pay. However, the harsh reality of the life of migrant workers in Qatar was unveiled. Many migrant workers lost their lives by working on construction sites in the host country's most essential soccer tournament, which unites millions of people every four years.  

The World Cup will be played following years of serious migrant labor and human rights abuses in Qatar, Human Rights Watch said. The only way through which Qatar could build so many infrastructures was by hiring migrant workers from Nepal, India, Pakistan, or Bangladesh. Nonetheless, FIFA awarded the games to Qatar in 2010, with little human rights due diligence and no clear restrictions regarding protections for migrant workers who would be required to build the vast infrastructures. This lack of control and regulations has led to the death of hundreds of migrant workers, who allegedly passed away while working on the infrastructure for the FIFA World Cup Qatar 2022. As a result, more people became aware of the human rights violations in Qatar over the last decades. Human Rights Watch identified Qatari laws, norms, and practices that enforce discriminatory male guardianship standards that deprive women of the ability to make important life decisions in a report from 2021. In Qatar, women must seek their male guardians' consent before getting married, receiving reproductive health care, working in several government jobs, and studying abroad on government scholarships. In 2017, FIFA adopted a Human Rights Policy, pledging to take "measures to promote the protection of human rights," saying, "FIFA will take adequate measures for their protection, including by using its leverage with the relevant authorities. However, by granting Qatar the right to host the World Cup, FIFA is going against its words to promote the protection of human rights as the host country has been the source of various human rights violations over the last decades.

Fifa, the World Cup organizer, has been blamed by many for its lack of recognition and responsibility in electing Qatar to host and organize the World Cup. This worldwide event is expected to have an influx of over 1 million visitors in a country with a population of less than 3 million. FIFA ought to have understood that millions of individuals providing their foreign labor would be required to create and maintain the World Cup's infrastructure. This was anticipated to have cost US$220 billion and included eight stadiums, an airport expansion, a new metro, numerous hotels, and other significant infrastructure. Additionally, FIFA is responsible for those workers and ensuring safe working conditions. However, according to Human Rights Watch, FIFA failed to impose strict conditions to protect workers despite repeated warnings from the workers themselves and civil society organizations and instead became a complacent enabler of the widespread abuse workers endured, including illegal recruitment fees, wage theft, injuries, and deaths.

Qatar is a country with many rules that have been extended to visitors of Qatar, even during the World Cup. Such restrictions have created a lot of controversies but also shine a light on government laws in Qatar that indicate human rights violations. For example, a rule that visitors and fans must follow is no sexual intercourse outside of marriage. Qatar's penal code criminalizes all forms of sex outside marriage, with sentences of up to seven years in prison. In addition, Qatar's penal code punishes consensual sexual relations between men above age 16 with up to 7 years in prison. A penalty of up to 10 years is imposed on anyone who engages in consensual sexual relations, which could apply to consensual same-sex relations between women, men, or heterosexual partners. Minky Worden, a news reporter and writer for Human Rights Watch, said that journalists would help ensure that these crucial issues of human rights violations are brought to light by the World Cup, as Qatar, FIFA and its sponsors still have a chance to rescue the tournament's legacy by addressing migrant rights abuses related with the World Cup and enacting reforms to increase protections for women, LGBT people, and migrant groups - not just during the World Cup but also beyond.

Currently, there are no reports of tourists being arrested for violating any of the rules stated above. However, tourists and fans are expected to abide by Qatari laws, with the risk of getting arrested, detained, and potentially put into jail. It has been reported, however, that fans have attempted to enter the stadium with an LGBTQ+ flag. This was the fan's way of showing their support for the LGBTQ+ community of Qatar, which is subject to abuse and mistreatment in the nation. These fans were denied access to the stadium unless they gave up the flag. 

While human rights abuses are still present in Qatar and millions of migrant workers work in horrible conditions, questions arose regarding the environmental effort of Qatar during this World Cup. According to Fifa, an international governing body of association football, "The FIFA World Cup Qatar 2022 Sustainability Strategy includes a comprehensive set of initiatives to mitigate the tournament related emissions, including energy-efficient stadiums, low emission transportation, and sustainable waste management practices".The 2022 FIFA World Cup sustainability strategy will enable the host country to deliver a tournament that sets new benchmarks in social, human, economic, and environmental development. However, according to recent discoveries, Qatar has been going against the above ethical standards established by FIFA. In its recent report, Carbon Market Watch found that when FIFA tabulated the carbon footprint for building seven new stadiums, it ignored enormous carbon sources, underestimating emissions by a factor of eight.

Furthermore, with newly built air-conditioned stadiums and 150 daily flights to bring in fans, the 2022 World Cup has been dubbed one of the competition's biggest environmental disasters. Even though Qatar claimed that its World Cup met the environmental standards that FIFA set, many concerns have arisen as to whether or not this World Cup is sustainable or greenwashing. After further research, it has been discovered that although Qatar has shown sustainable efforts, this promise of carbon neutrality is not possible, according to Gilles Dufrasne, lead author of the Carbon Market Watch report published in May 2022, examining Qatar's claims.

Known for being an oil country, Qatar's economy will only benefit from this international tournament, even at the cost of human rights and sustainability. In the past, it has been shown that hosting the World Cup could generate a lot of revenue for the nation. However, it is also true that hosting this competition may be a bad idea for others. The Qatar World Cup in 2022 is estimated to generate $4.7 billion in income. However, given the amount of money invested on investments and infrastructure for this internationally known competition, Qatar's unprecedented outlay is unlikely to pay off. There is the typical assumption that billions of people will witness this mega-event, putting Qatar on the figurative map and encouraging tourism, foreign trade, and investment. It might also give Qatar a larger influence in geopolitics. The historical data is negative for these promises of developing "soft power" and long-term economic gains. Being seen on the global stage is a two-way street. Qatar receives a lot of attention, but the majority of it could be more positive. It paid bribes to secure hosting privileges. It has brought in tens of thousands of foreign laborers and subjected them to its cruel kafala labor system, which has reportedly killed thousands of people. The games were rescheduled from summer to November/December due to the extreme heat. Its unfinished investment projects will be prominently shown. The expulsion of foreign workers from their homes to accommodate soccer fans and, ultimately, the removal from the country, among other embarrassments, is not likely to enhance Qatar's positive power.

The FIFA World Cup Qatar 2020 has been the most controversial sporting event in the last few decades. While the renowned competition unveils the ongoing issues that the host country has been facing for decades, it is also leaving the future of the country unknown as hatred has built up against Qatar, a small oil country under the spotlight for hosting the World Cup, but also for its violations of human rights, and allegations of greenwashing. It is now up to Qatar and its Executives to live up to the expectations that it set for itself.

The World’s Economy Weakens Amid Russia’s Invasion of Ukraine

On 24 February 2022, Russia invaded Ukraine in a major escalation of the Russo-Ukrainian War, which began in 2014. Ever since, the effects of this invasion have been felt by most – if not all – countries around the world. The Russia-Ukraine war has significantly impacted the economy and stability of many nations that heavily relied on both Ukraine and Russia for trade and supply chains. 

Covid-19, a two-year long pandemic that greatly disrupted global markets and Europe’s economy due to the fact that many were forced to stay at home for an extended period of time, which caused trade and production to slow down, causing the Gross Domestic Product of many nations to collapted. As the continent was resurging from a two year global pandemic that greatly impacted its economic stability, the war triggered by Russia only weakened an already frail economy.

Worldwide, consumers can feel the weight of this conflict that has disrupted supply chains and affected many global markets, more specifically the global energy market. As a response to this conflict, many nations have imposed economic sanctions on Russia, in the sole purpose to economically pressure the country to put an end to this war that had already cost the lives of many. The volatility in European energy markets caused by the European Union  and United Kingdom sanctions on Russian energy - imposed in retaliation for Russia's invasion of Ukraine in February - have cut out a slice out of the continent's economy. 

The disruption of supply chain and trade caused by Russia’s invasion of Ukraine has led to an increase in the price of many goods, energy, and gas related goods in many European nations, which has created inflation throughout the continent.The reason for such increase in price is due to the fact that many nations were heavily dependent on Russia and Ukraine for many goods. Most importantly, Russia was an important oil and energy trade partner with European nations. Inflation is a general increase in the prices of goods and services in an economy. Inflation affects the economy of a country by increasing the price of food, energy, higher utility cost, while not receiving an increase in wages and higher interest rates on home loans which negatively affect consumers, and thus the economy, as inflation lowers the purchasing power of many.

Inflation is a hard thing to get rid of in an economy. Triggered by the disruption of trade as a consequence of Russia’s invasion of Ukraine, policy makers and governments are actively attempting to mitigate the negative effects of inflation on their country’s economy. However, while inflation remains a big issue in Europe and the rest of the world, the energy market is slowly collapsing under the sanctions against Russia.

As a response to inflation, the European Central Bank, the Bank of England and other central banks across Europe have aggressively raised interest rates to bring down high inflation. Raising interest rates is an economic policy used for the sole purpose to slow the economy down and bring down inflation. As a result of high interest rates, companies and individuals will cut back on spending, which will naturally bring down the price of goods and services that were previously increased due to the disruption of global markets. 

While interest rates rise around the world, stocks and bonds are being sold off. The reason behind which bonds are being sold off is that when interest rates rise, new bonds pay investors higher interest rates than old bonds, so old bonds tend to fall in price. Inflation caused by political instability  has led to this increase in interest rates as well as stocks to go down, which further highlights the lack of confidence in the economy from consumers, investors, and businesses. In a bear market—stock prices are falling—consumers and companies have less wealth and optimism—leading to less spending and lower GDP.

Households have found it challenging throughout the continent to keep up with inflation. While inflation results from changes in the cost of a market basket of goods, wages, on the other hand, are driven by changes to supply/demand for labor. As the weight of this conflict weighs on the shoulders of consumers and governments, Russia’s current economic and political instability keeps on harming the global economy, while disrupting markets.

While Russia’s invasion of Ukraine has greatly disrupted supply chain, trade, and global markets, all of which have had negative repercussions on Europe’s economy, the most important challenge to consider as to this day is the energy crisis that nations have been facing and are currently facing as a result of this bloody conflict. 

The repercussions of the war in Ukraine have "distorted" the natural gas market, leading to higher energy prices. Indeed, natural gas, used to generate electricity and heat, is now about ten times more expensive than it would have been a year ago. Electricity prices, which are tied to the price of gas, are also several times higher than what was considered reasonable. The reason behind such volatility in natural gas prices is due to the fact that Russia is an important producer of natural gas and thus, its role in trade is crucial.  The rise in natural gas’ prices is a fear that Europe will run out of gas this winter. 

On the bright side, governments are actively attempting to stem the energy crisis. European Union countries, such as Germany and the Netherlands, are scrambling to fill gas storage facilities to guard against a possible complete shutdown of Russian gas this winter. Governments have also taken steps to secure additional supplies in the form of liquefied natural gas from the United States and other countries. While France and other countries provide financial assistance to consumers, but not enough to offset the dramatic increase in costs faced by households. A wide range of politicians, consumer advocates and even energy executives are calling on governments to do much more.

The European Central Bank, which oversees economic policy for the 19 nations that use the euro, took an aggressive step to fight inflation with its biggest rate hike ever, three-quarters of a percentage point. 

European Union ministers were scheduled to meet on September 9th to discuss a plan to intervene in energy markets in order to control prices. At this meeting, they have discussed strategies that could include price caps and mandatory cuts in energy consumption.

The sharp drop in supplies from Russia, which previously provided about 40 per cent of the European Union's gas needs, has left governments scrambling to find alternative energy resources and raised fears of possible power cuts and a recession. After suffering an increase in the price of many goods amid Russia’s invasion of Ukraine, citizens of many countries now fear spending a winter in the cold, as the price of energy is going up. 

Nations across the continent are still attempting to fight inflation through different economic policies, the main one being the rise of interest rates by central banks. Although this has proven to be an efficient method to bring down prices and ultimately lower inflation, this method has also led to a collapse in the stock market. Ultimately, nations are attempting to find alternatives for natural gas, alternatives that will be less costly and harmful to their economies. 

Putin, President of Russia, offered the European continent gas through Nord Stream 2. Nord Stream is a natural gas pipeline through the Baltic Sea. The pipeline is a key factor in securing energy security in Europe. For many, this was interesting news, knowing that the country has been reducing gas supplies through Nord Stream 1 for a number of months. While this reduction in gas supplies is affecting many countries, Germany has been the most affected by it, as Russia contributed to 55% of its natural gas. Additionally, the pipelines were damaged, which only further impacted gas supplies, while having a negative impact on the environment. 

Aware of the natural gas shortage that Europe is currently facing, Putin offered Europe gas through Nord Stream 2. Germany, on the other hand, said it would not take Russian gas via the Nord Stream 2 pipeline, which has become a major focus of the Ukrainian crisis. Indeed, accepting Russia’s offer now would only go against all of the economic sanctions that were set up against the country to mitigate the repercussions of the crisis that has already affected the world’s economy. While nations seek alternatives to find natural gas, accepting gas from Russia would benefit Putin and his country, as he attempts to gain political power, and economic dominance, amid the war that he started back in February of 2022. 

Political and economic instability persist across Europe as relations with Russia are tense. Economic sanctions against the nation have proven to be effective, even if they are harming the world’s economy in the short run, through the disruption of global markets that have weakened the economy of many European countries. In the long run, the economy will self-adapt to these new changes in global financial markets, but in the meantime, governments are attempting to find in which they can alleviate economic and political tensions, in the sole purpose to achieve economic prosperity while improving relations between Russia and its trading partners.

As of today, it seems as if the future of Europe lies within the hands of Russia. The country’s next steps in this crisis will ultimately affect the economic and political stability of neighboring nations. Until Russia puts an end to this war, the world will feel its negative  repercussions. 

It’s Looking a Lot like 1979 in the UK… or Is It?

I am not the first to note that Queen Elizabeth II’s death on September 8th, 2022 heralds the end of an era. For many, her presence was the one constant during these past seventy years of change, and her death has come at the tail end of a summer representing a fork in the road for Britain. Public uncertainty surrounding the fate of the monarchy has also become representative of the general sense of unease that the United Kingdom has dealt with over the past year. In the few months since Boris Johnson stepped down, inflation has skyrocketed, energy bills have nearly doubled, the pound sterling has slumped nearly to parity with the dollar, strikes have continued to intensify, the airlines have continued to face challenges, and public satisfaction with the much-lauded National Health System (NHS) is at an all-time low. As such, it comes to nobody’s surprise that the very real fears of a recession have dominated the headlines. All of this comes at the heels of a fraught few years of former PM Boris Johnson’s repeated scandals, echoes of the coronavirus pandemic, and the continued economic fallout of Brexit.

To anyone who gives even a cursory look to 20th century British history, it is hard to stave off comparisons to the political and economic situation that gripped the UK in the mid to late 1970s, which was also characterized by internal turmoil. During the unprecedented freezing winter of 1978-1979, the so-called Winter of Discontent took hold, during which the country realized the status quo was no longer tenable. Over forty years later, the country seems poised at an eerily similar turning point. While the winter of 1979 heralded Margaret Thatcher’s rise to power, the 2022 so-called “Summer of Discontent” has left the country with new Prime Minister Liz Truss. Ms. Truss has famously attempted to fashion herself as a second Thatcher, and while there are similarities between the two, there are 40 years between them and the contexts in which they are operating. While there isn’t a single solution to fix national sentiment, Britain must understand that Truss is no Thatcher and that the new government must take immediate strides for structural reform, or face a series of dark, recessionary years in the foreseeable future.

For context, in the two decades following the Second World War, Britain experienced an economic "Golden Age”, during which the country experienced its fastest ever economic growth, 2% unemployment, the construction of national motorways, increased productivity, housing construction, the establishment of a strong welfare state, and overall raised standards of living. The prosperity reached such a degree that in 1959, Queen Magazine–now Harper’s Bazaar–declared that “Britain has launched into an age of unparalleled lavish living,” where average wage was high and unemployment low. Keynesian economic thinking came to dominate the post- war economic consensus, and Britain enjoyed nearly twenty years of economic success. All of this came to a screeching halt in the mid 1970’s.

Even though the UK finally entered the European Economic Community in 1972, throughout the decade, Britain experienced mass strikes by coal miners and rail workers, the effects of the 1973 oil crisis, and widespread blackouts due to lack of available electricity. Unemployment rose once again, exceeding 5%, and inflation peaked at a staggering 25%. In 1976, the Labour Government was forced to borrow $3.9 billion from the International Monetary Fund (IMF) to prop up the value of the pound sterling, which had severely dropped in value in relation to the dollar. All of which culminated in the aforementioned Winter of Discontent, where nearly every industrial union went on strike. This included everyone from gravediggers to waste collectors, NHS employees, and truck drivers. They demanded pay raises greater than the limits the Labour government was willing to give, as the government was desperate to tamp down inflation. The strikes caused massive public unrest and inconvenience amid unprecedented freezing temperatures. Unsurprisingly, the Labour government fell in 1979 and Margaret Thatcher was elected as Prime Minister.

Thatcher is perhaps the most controversial figure in modern British politics, equally reviled and beloved. Her government marked a new era in economic policy, adopting what is recognizable to Americans as traditional conservative policies. This included deregulation, privatization, an emphasis on the free market, an overhaul of relations with labor unions, and massive tax cuts. The government adopted stringent economic and fiscal policies to reduce inflation and stuck to them. And to Thatcher’s credit, they were overwhelmingly successful, as inflation was tamped down from 20% in 1980 to around 4% in 1987.

British conservatives are famously known for flip-flopping on issues and are not known for their ideological consistency. Most cynically put, the Conservative manifesto is to adopt policies that will help them stay in power and remain popular with voters. But Margaret Thatcher was famous for sticking to her policies. While there is no doubt as to the widespread suffering Thatcher’s policies caused through cuts to welfare and reduced government spending, she took the country off the brink of economic collapse. 

Returning to the present, it is easy to see where the parallels lie, and on the surface, the current economic situation does not look so different. Liz Truss, another young, female star of the party, from a state-school background, has quickly risen through the ranks to become Prime Minister. Truss has leaned wholeheartedly, and sometimes ridiculously, into this comparison, positioning herself as the second coming of Thatcher. A much-lampooned photo-op saw her in Moscow wearing a nearly identical outfit to Thatcher, and she is even known for wearing the same kind of blouse for which the Iron Lady was famous. However, there are some more meaningful parallels, perhaps best encapsulated by her Reagan-esque belief that cutting taxes will somehow spur productivity growth.

However, this is not 1979, Truss is no Thatcher, and ultimately, her policies make little coherent sense. The ongoing war in Ukraine has defined the current energy crisis, and it was recently announced that the UK was going to face a staggering 80% increase in household energy prices due to limited supply. One of Truss’s first announcements as PM was to cap the per unit cost of energy that providers can charge. This was too popular not to pursue, as the public was nearly united in a push for the government to do something about it. However, this seems to be more of a band aid on a bullet wound, as the government cannot credibly control inflation for the long term by placing a price cap on a good. 

The panic surrounding the Nord Stream 2 Pipeline sabotage is representative of this crisis and how a continued reliance on energy sources from Russia will continue to plague the UK. While Thatcher was saved by the discovery of North Sea oil, a miraculous new discovery of oil and gas resource in British waters seems unlikely. If the war drags on, which it seems likely to do, the scarcity of natural gas available to the UK will persist and prices will continue to rise, ultimately placing more pressure on the government to cover the difference, increasing the deficit––which could ultimately cause inflationary effects. Whether it be a serious investment in renewable energy sources or a shift back towards nuclear, Britain must shift away from this continued reliance on natural gas and oil, especially from foreign sources.  

Despite the inflationary effects that seem bound to occur, Truss seems determined to cut taxes, even as the government remains adamant that they will cover the shortfall between what consumers pay for energy and the market rate. The plan to avoid a fresh windfall tax on energy producers would mean pushing costs on to taxpayers, with as little as 1 pound in every 12 spent on energy support for households recouped from higher taxes on energy firms. Even Thatcher made the unpopular decision to raise taxes in 1981 to manage the deficit and inflation.

While currently Truss appears to hold steadfast in her views to not raise taxes and remain tough on labor unions, for many, she embodies the flip-flopping for which the conservatives are so well-known. For a historical example, she backed the Remain campaign during the 2016 election, but as the tide began turning, and looked as if they were going to lose, she quite suddenly changed her tune and became one of Boris Johnson’s most ardent supporters. While she has timidly announced increased government spending in the form of energy cost caps, she also remains determined to cut taxes, and reduce inflation. But this mixture is far from the Thatcherite policies that worked, and by pursuing what is popular, she remains sailing with the prevailing wind.

While Truss attempts to pursue Thatcherism 2.0, her government must face that they are operating in a completely different time and context. Thatcher was successful in dismantling the postwar economic consensus that was centered around Keynesian thought and instituting neoliberal economic policies, but Truss is operating in a country that is already neoliberalized and thus must face the fact that state intervention is necessary. The war in Ukraine is certain to drag on, and energy prices will continue to rise, especially during the coming winter when demand goes up as well. The leadership also must accept the reality that if they don’t stop the flood of discontent surrounding the party, they are in danger of losing the next general election in two years, as it was under their watch, not Labour’s, that the country has entered its current predicament. And the leader to get the economy back on track does not need to be from the Conservative party.

For millions, Queen Elizabeth II represented stability, reliability, and greatness. Now, without her constancy, the future state of the United Kingdom has been thrown into sharp relief. National sentiment is polling at an all-time low, and it's hard to find anyone in Britain who is optimistic for the future. The Conservative party must adopt hard and fast policies that take aim at the ailments of our time or risk losing the next election. But whether it occurs under Labour or the Tories, a serious change to the status quo is in order.

A special thank you to Daniel Dorey Rodriguez, who contributed much needed economic policy facts and lived experience for this piece!   

Capital Over Country: Challenges of International Investment Arbitration in Latin America

The return of democracy in the 1980s and 1990s experienced by most Latin American states after decades of military rule coincided with a pivot to market-oriented economic policies, encouraged by the collapse of the Soviet Union and the perceived failure of state-led economies. To attract foreign investment, states implemented an array of budgetary and trade policies: austerity measures meant to reduce hyperinflation were introduced and Bilateral Investment Treaties (BITs) were negotiated to reduce the risks for foreign investors investing in Latin American countries. Under these treaties, investors were to be granted most-favored nation (MFN) status to compete on a level playing field with local and international competitors and granted protections against expropriation, broadly defined as measures which deprive the investor of the economic value of its investment. Investors gained the right to pursue claims against host countries due to unfair or unequal treatment at international arbitration organizations like the International Center for the Settlement of Investment Disputes (ICSID) rather than in the courts of the host government. 

The negotiation of BITs came in response to a series of 10 market-oriented policy prescriptions recommended by the United States to developing economies to promote economic growth known as the Washington Consensus: including legal security for property rights and liberalization of foreign direct investment (FDI). Development economists posited the free flow of FDI through countries with untapped natural resources and labor pools would result in the development of new markets, poverty reduction, and greater integration with the world economy. While some scholarship has suggested a link between FDI and the achievement of these goals, a growing body of research has linked a larger share of FDI in a developing country’s economy to greater inequality and weaker domestic industries unable to compete with foreign firms.[1] [2] Furthermore, the attainment of the United Nations 2015 Sustainable Development Goals (SDGs) which encourage sustainable and inclusive development by taking into account the social, environmental, and political factors which most concern the citizens of the host country has become complicated as states, especially those in Latin America and the Caribbean, have sought to renegotiate their international obligations in pursuit of these goals. 

States seeking to expropriate foreign investments fueled by populist rhetoric and electoral promises to reassert national sovereignty over domestic resources have clashed with aggrieved investors armed with the power of contractual legal commitments demanding compensation for allegedly violating agreements signed by their predecessors. This article will first outline the current Latin American investor-state arbitration landscape, then proceed to outline three primary approaches states have taken to avoid costly arbitration awards, and conclude with a recommendation that BITs should be renegotiated to grant greater stakeholder participation in the process of FDI if investors wish to maintain a healthy business environment and lessening the risk of sudden hostile takeovers by a resurgent political left. 

2 The Current Latin American Investor-State Arbitration Landscape

 Latin America is notable for its considerably higher percentage of arbitration decisions which ruled in favor of investors when compared to other regions. For example, investment arbitration decisions in the Latin American and Caribbean (LAC) ruled in favor of the state 29.7% of the time, compared to other middle and low-income regions at 42.9% and the United States, Canada, and Europe at 50%.[3] In 2012, the International Center for the Settlement of Investment Disputes (ICSID) tribunal awarded Occidental Petroleum $1.77 billion in a case against the Republic of Ecuador due to alleged breaches of the US-Ecuador BIT, the largest award ever issued by an ICSID tribunal.[4] The 2001-2002 convertibility crisis in Argentina and subsequent ICSID claims made by investors showed that politicians are more likely to answer popular demands to expropriate from the electorate rather than follow through on their BIT obligations.[5] However, the region’s largest and most populous country, Brazil, has yet to ratify a single BIT and serves as a useful point of reference for evaluating the efficacy of such agreements in achieving their goals. The high rate of successful treaty-based arbitral claims filed against LAC countries can be explained in part due to (1) the commodity-driven and extractive nature of the region’s economy and (2) the political volatility of the region. 

2.1 Criticisms of the International Center for the Settlement of Investment Disputes 

Bolivia was the first to denounce and withdraw from the ICSID in 2007 under socialist president Evo Morales, citing issues of national sovereignty over the country’s vast natural resources. Having rewritten the country’s constitution in 2009, Morales also started the process of denouncing and renegotiating all of Bolivia’s BITs. However, this has not stopped ICSID claims against Bolivia from being filed regarding investments made both before and after the withdrawal from the convention due to survival clauses in the previous agreements.[6] Furthermore, in 2009 Ecuador withdrew from the ICSID Convention under leftist President Rafael Correa but as of July 2021, newly elected moderate President Guillermo Lasso has since re-ratified the convention in hopes of bringing new foreign investment to the country. In 2012, Venezuela denounced and withdrew from the ICSID Convention, after it was made to pay hefty awards to oil companies which the Chavez government had expropriated.[7] When governments oscillate between their levels of commitment to their international treaty obligations, investors become weary. 

2.1.1 Argentina and the ICSID

While Argentina remains a party to the ICSID Convention, it has displayed little willingness to comply with its international obligations. The nation tops the list of most frequently sued states; it refuses to comply with some of its arbitral decisions, opting instead to shift decision-making to domestic courts where it hopes for a more favorable outcome may be reached. Creditors’ lobbying efforts in the United States were successful when the U.S. withdrew trade benefits extended to Argentina and voted down World Bank and Inter-American Development Bank loans for the indebted nation. President Obama stated, “it is appropriate to suspend Argentina’s designation as a GSP beneficiary developing country because it has not acted in good faith in enforcing arbitral awards in favor of United States citizens or a corporation, partnership, or association that is 50 percent or more beneficially owned by United States citizens.” After making an example of Argentina using coercive monetary policy, Argentina eventually settled some of its disputes with disgruntled investors, leading to the reestablishment of GSP relations in 2018. As of 2022, hyperinflation caused by the devaluation of the peso as foreign investors pulled out during the pandemic, combined with a decline in commodity prices and a high level of indebtedness to international financial institutions and investors has crippled an already fragile economy.[8]

Argentina exemplifies the plight of many lower and middle-income countries in Latin America who in the 1990s adopted structural adjustment reforms to liberalize their markets and attract foreign direct investment through the signing of bilateral investment treaties. Neoliberal policies were successful in creating economic growth for the middle and upper-class elite, yet demanded cuts to social safety nets, public healthcare expenditures, and exacerbated inequality in what is already the world’s most unequal region.[9]

 Considering that (86%) of investor claimants in international arbitration courts are from high-income countries and the majority (66%) of cases are brought against lower and middle-income countries, the status quo created by bilateral investment treaty agreements asserts that a multinational corporations’ right to make profit supersedes a state’s national sovereignty to enact reforms demanded by its democratically elected government.[10] Therefore, such BITs need to be renegotiated to reassert sovereignty of host nations to protect the environment, fund desperately needed social programs, maintain a sovereign monetary policy, and create a mutually beneficial relationship between FDI and the state. 

3 Towards Solutions

Political upheaval brought about by acute social and economic inequality, the region’s relationship with international institutions and creditors, and the crippling impact of the pandemic fundamentally reshaped the political opportunity structure in many states: the region has been more vulnerable to democratic backsliding, more willing to rewrite existing laws and constitutions, more desperate for international investors, and more dependent than ever on high commodity prices to keep their fragile economies intact. In 2019, Latin America was the only region to register zero economic growth, and experienced the largest economic contraction due to the pandemic. Countries face the following non-mutually exclusive policy options in pursuit of a post-pandemic recovery: (1) settle ongoing arbitration cases to boost investor confidence (2) renegotiate or withdraw from BITs and ICSID conventions, or (3) boost foreign capital inflows through greater Chinese foreign direct investment. 

References

[1] Herzer, Dierk, Philipp Hühne, and Peter Nunnenkamp. 2012. “FDI and Income Inequality - Evidence from Latin American Economies.” Review of Development Economics 18 (January). https://doi.org/10.1111/rode.12118.

[2] Tuman, John P., and Craig F. Emmert. 2004. “The Political Economy of U.S. Foreign Direct Investment in Latin America: A Reappraisal.” Latin American Research Review 39 (3): 9–28.

[3] Remmer, Karen L. 2019. “Investment Treaty Arbitration in Latin America.” Latin American Research Review 54 (4): 795–811. https://doi.org/10.25222/larr.154.

[4] ICSID. n.d. “Occidental v. Ecuador (II) | Investment Dispute Settlement Navigator | UNCTAD Investment Policy Hub.” Accessed March 19, 2022. https://investmentpolicy.unctad.org/investment-dispute-settlement/cases/238/occidental-v-ecuador-ii-.

[5] Remmer, Karen L. 2019. “Investment Treaty Arbitration in Latin America.” Latin American Research Review 54 (4): 795–811. https://doi.org/10.25222/larr.154.

[6] Kluwer Arbitration Blog. n.d. “Life after ICSID: 10th Anniversary of Bolivia’s Withdrawal from ICSID.” Accessed March 19, 2022. http://arbitrationblog.kluwerarbitration.com/2017/08/12/life-icsid-10th-anniversary-bolivias-withdrawal-icsid

[7] “International Arbitration Tribunal Orders Venezuela to Pay ConocoPhillips $8.7 Billion for Unlawful Expropriation of Company’s Oil Investments.” n.d. ConocoPhillips. Accessed March 19, 2022. https://www.conocophillips.com/news-media/story/international-arbitration-tribunal-orders-venezuela-to-pay-conocophillips-8-7-billion-for-unlawful-expropriation-of-company-s-oil-investments/.

[8] González, Enric. 2021. “Argentina’s Perpetual Crisis.” EL PAÍS English Edition. March 5, 2021. https://english.elpais.com/usa/2021-03-05/argentinas-perpetual-crisis.html.

[9] Baer, Werner, Pedro Elosegui, and Andrés Gallo. 2002. “The Achievements and Failures of Argentina’s Neo-Liberal Economic Policies.” Oxford Development Studies 30 (February): 63–85. https://doi.org/10.2139/ssrn.279383.

[10] Samples, Tim. 2018. “Winning and Losing in Investor-State Dispute Settlement.” SSRN Scholarly Paper ID 3233704. Rochester, NY: Social Science Research Network. https://papers.ssrn.com/abstract=3233704.

Italy’s Never-Ending Political Crisis: New Prime Minister, Old Challenges

Introduction

Italy, the European Union’s third-largest economy, is well acquainted with political uncertainty. Its crisi di governo are incredibly frequent, resulting in 19 different governments since the fall of the Berlin Wall, with each having an average lifespan of slightly over 18 months. No strangers to political restructuring, Italians have seen their fair share of snap elections, coalition construction, and new prime ministers.

This winter’s political turmoil followed this trend. The government of Giuseppe Conte collapsed following disagreements over the distribution of coronavirus relief funds. After Conte failed to patch together a new coalition, President Sergio Mattarella tapped a replacement: Mario Draghi, the former European Central Bank chief who famously promised to do “whatever it takes” to save the euro. His new government is unique, as University of Birmingham Professor Daniele Albertazzi notes, in that it includes almost all major Italian parties from both the left and right wings. They certainly don’t call him “Super Mario” for nothing.

But it also includes a roster of many ambitious politicians, all with their own divergent political motives. Amidst a pandemic that has claimed over 100,000 Italian lives at the time of writing and decimated the economy, Draghi radiates hope. However appealing and necessary he may be at the moment, including to a wider Europe, his success in forming a government likely does not end Italy’s persistent political minefield. Regardless, Draghi’s entry offers an opportunity to investigate the roots of Italian political discord and the challenges they pose for one of Europe’s most crucial countries.

Politics As Usual

The 2010s saw the end of longtime Prime Minister Silvio Berlusconi’s controversial tenure and the shock waves of the global financial crisis, which devastated Italy. After a series of mainstream leaders, voters punished traditional parties in the 2018 parliamentary elections, instead favoring two populist Eurosceptic alternatives: the left-wing Five Star Movement (Italian: Movimento Cinque Stelle) and the far-right League (Italian: Lega). The resulting government chose Conte as prime minister, an unknown lawyer accepted by President Mattarella. Against the odds, Conte maintained his post through two governments — including by presiding over a second cabinet of erstwhile enemies Five Star and the Democratic Party — and maintained impressive approval ratings. The christened “people’s lawyer” seemed to be Italy’s new rising star.

The coronavirus pandemic only deepened public faith in Conte. But when it came time to oversee relief funds issued by the E.U., conflict brewed with a small party in his coalition: Italia Viva, started by former Prime Minister Matteo Renzi. The “Demolition Man,” as Italians know Renzi, lived up to his name by pulling his ministers, thus denying Conte his parliamentary majority and triggering his departure. President Mattarella, as Renzi likely wanted all along, tapped Draghi to move forward. Renzi may note that he owes this effective political maneuver to the fact that he hails from Florence like Niccolò Machiavelli; yet however successful he was, his low approval ratings suggest Italians see him as more of a dunce than a prince.

The ensuing unity government, buttressed by parties across the political spectrum, has fostered a sense of optimism among many. However, these parties and their leaders are rather strange allies, likely united more by opportunism than patriotism. This haphazard cast of characters presents a key challenge for Draghi: to keep all satisfied in perpetuity, even those who may find incentive to work against him. Like before, politics remains in flux, contributing to sustained unpredictability. Regardless of this, the new administration is a temporary boon: after some weeks of volatility, a nation enduring sweeping health and economic crises has regained leadership under an undeniably competent figure. But it remains to be seen if Draghi can maintain a dynamic enough presence to put an end to the constant infighting that has come to emblematize Italian politics, or if he even wants this role for long. Many of his new bedfellows have their own aspirations; likely, Draghi is just one more cumbersome step in the way toward political success. With an election set for early 2023 at the latest, it is conceivable that future maneuvers may imperil Draghi’s government before then and thus reopen the floodgates.

Five Star and PD: Changing Fates on the Left

The Five Star Movement’s (M5S) considerable victory in 2018 gave it the most seats in parliament. It was founded by comedian and blogger Beppe Grillo in 2009, famous for encouraging vulgar protests against the political class. More confounding is its ideological position; scholars Lorenzo Mosca and Filippo Tronconi find it does not fit neatly on the left-right spectrum, but instead advocates an “eclectic populism” of sorts. It has prioritized some key left-wing positions like strident environmentalism and a reddito di cittadinanza — a universal basic income — in combination with Grillo’s key ingredient: fury against the elitist, corrupt governing casta, which encompasses both domestic elites and external ones, like the E.U. While victorious at the polls, this stance made the transition into governance quite difficult. It has, albeit at different times, partnered with both the rightist League and its erstwhile enemy, the Democratic Party, as part of fractious coalitions.

Today it stands at risk of political implosion. At near 15%, M5S polls below the Democrats and two right-wing competitors. Its partnerships with other parties likely make it less authentic to many who supported it in a rage against the machine. When they asked their supporters online whether or not to back Draghi, a tepid 59% responded ‘sì,’ even with a question with wording some considered skewed to favor this outcome. On the day of voting to confirm Draghi’s government in parliament, at least 15 M5S members voted against him; more party defections have followed. Many cited working in coalition with Berlusconi as the final straw.

Even so, new elections would likely yield substantial losses. Thus the technocratic, establishment Draghi is a bitter pill to swallow, but digest it M5S must for now. (One development to watch is if Conte accepts offers to serve as a new party leader, which some polls suggest could revive M5S’s support.) Meanwhile, the center-left Democratic Party (PD) has reversed its fortunes since 2018, when it won the fewest number of votes in its history, and is now rising again in the polls. With Renzi having broken off for his personal Italia Viva project, the PD has again become a force that could improve its standing in the future. All three parties have joined forces with Draghi to govern. Whereas M5S is making a largely tactical move, PD and Italia Viva have a prime minister much more to their liking — for now at least. Draghi’s success and brand could also help rejuvenate theirs if he remains popular. 

Salvini and Friends: The Shadow of the Far Right

The right side of Italy’s political equation, on the other hand, includes some of the country’s most notorious politicians. The ubiquitous Matteo Salvini of the League is a far-right, Eurosceptic populist and immigration hardliner with a formidable social media following. As the former Minister of the Interior, he proudly denied boats carrying migrants from docking, contrary to international asylum principles. He also impressively helped to transform the League from a pro-northern, anti-southern regionalist party to a full blown right-wing populist outfit. Considering this political acumen and popularity, Salvini has certainly earned the title of “most feared man in Europe.”

His decision to back Draghi is a strategic one as well. The term ‘far-right’ has been an albatross around the League’s neck, and at the urging of some in parliament and a sizable northern moderate constituency, Salvini has chosen to downplay his Euroscepticism and support a mainstream government. The last time he saw an opportunity — albeit one that did not go quite as planned — to sink a government to consolidate power in a snap election, he did so. Salvini, without doubt, wants to be prime minister one day, and could bargain to collapse the government eventually if he smells blood. He would also have some allies to fall back upon. The right-wing Brothers of Italy (Italian: Fratelli d’Italia, FdI) has gained markedly in the polls, picking up much of any support Salvini has lost, claiming the title of Italy’s third most popular party at the moment. A consistent far-right option, party leader Giorgia Meloni could be a potential ally to Salvini, sharing his views on immigration, Islam, and other social matters. More than this, she has chosen to steer clear of joining Draghi’s government, allowing her to receive attention as the opposition and remain insulated from potential government controversy. The brash Berlusconi and his Forza Italia (FI) party have also reentered the limelight, granting support to Draghi.

For all the fears of a Marine Le Pen victory in France, Italy could very easily produce a far-right government in the hands of Salvini, with the backing of Meloni and Berlusconi. In the event of another shakeup, Salvini and Meloni likely fare well in elections and could be ready to form a replacement bloc. This is not to say the two do not also have reason to compete; if Brothers continues its growth and League remains on its current trajectory, their positions on the hierarchy could switch, rendering them Italy’s premier electoral competitors. Yet it is clear that Salvini’s ambition, which sometimes requires him to water down some positions and rhetoric, even those positions which have become integral to his identity, is not purely ideological. His will to power is clear.

Draghi’s Challenge and Italy’s Purgatory

“Why Italy wants Mr. Draghi is easy to see,” commented the Wall Street Journal Editorial Board, but “why Mr. Draghi wants the job… is a mystery for the ages.” It is true, premiers receive few thanks and suffer many headaches, as governing in Rome has not been easy. The last time a technocrat rode in on a white horse to “save Italy,” it was Mario Monti, who shepherded bitter austerity measures from 2011 to 2013. This time, explains Carlo Invernizzi Accetti of Foreign Policy, the E.U.’s coronavirus recovery aid will help Rome avoid this fate again, but this presents the challenge of how best to distribute it, a lesson Conte learned all too well. Draghi could be successful in reversing long-term decline in Italy’s economy using new stimulus, but could be constrained by entrenched obstacles and the need to satisfy his new allies as well.

Many politicos also favored Draghi in order to avoid new elections, which many see as an invitation for a right-wing, decidedly Eurosceptic coalition to enter government. But this is quite a double-edged sword. However successful he may be, selecting leaders in this fashion is an unsustainable strategy, as it simply pushes off inevitable consequences at the ballot box. Moreover, it can serve to shake faith in establishment politics. Continuing to push forth a chosen savior, technocratic figure when the going gets tough can create popular mistrust, fueling the rise of anti-establishment challenger parties. The potentially fractious nature of his coalition means that, beyond just governing, Draghi will need to hold together quarreling parties while also preserving his own political aspirations. Rumor has it he may hope to replace Mattarella as president in the coming years, for which he will need the continued support of parliament. 

What is clear is that Italian politics have become no simpler. Draghi may have calmed the waters, but sharks still circle. The party system fluctuates over the span of a few years, leading to rapid change, inconsistent fortunes, and inherently unstable compromise governments. Short-lived coalitions, however, have been endemic to Italy throughout its postwar democracy. But in an era where economic circumstances have changed, usual institutions are under duress, and the impacts of a global recession a decade ago continue to reverberate, Italy — and other European countries — suffer from this uncertainty.

Looking Abroad

Despite its large economy and cultural significance, Italy has a less prominent profile in European affairs than one might expect. As Karolina Muti and Arturo Varvelli at the European Council on Foreign Relations note, despite Italy’s rather consistent pro-European and transatlantic sentiments, “chronic internal instability tends to undermine its credibility and reliability in the eyes of both NATO and EU allies.” Increasingly though, Rome seeks a more outsized role in security, including by bolstering its military capabilities as part of a European framework and settling issues like the Libyan conflict on favorable terms. Draghi seems well positioned to bolster Italy’s profile within the E.U., given France’s Emmanuel Macron is concerned with his own reelection fight next year, Germany’s Angela Merkel is in the final year of her chancellorship, and the United Kingdom has sailed away. If successful, he could conceivably play a role in mitigating the dominant Franco-German partnership over the E.U. and reorient Rome as a renewed ally for Washington. In fact, there is reason to believe that U.S. President Joe Biden’s administration may be celebrating Draghi, especially as it looks to rejuvenate the transatlantic partnership.

Other European leaders also have reason to pray for his success. After all, the rise of Eurosceptic parties in Italy is hardly comforting and Draghi may well stave them off for long enough. The prospect of real reform in one of Europe’s most debt-ridden economies is also cause for cautious celebration. Last but not least, Italy is a founding member of the E.U. and a beacon of culture and history for the continent with untapped potential in the modern era. But the distinct possibility of a short-lived government dampens long-term hope. The favorable reception to Draghi is probably not sufficient to keep allies from fearing they may have to communicate with a new voice in Rome in due time. On the other hand, if Draghi manages to position Italy well during his tenure, it could provide an incentive for future governments to continue on a similar — or at least not totally dissimilar — path.

Conclusion

Draghi is clearly a capable leader for uncertain times in Rome. However, his arrival does not resolve the existing factors driving frequent turnover in Italy’s government. The party system fluctuates often, contributing to unpredictability and troubling discontinuity. Euroscepticism and populism have become part of mainstream politics, while the establishment increasingly relies on selected technocrats to hold together temporary coalitions. It is worth noting that Italy has long experienced this sort of turmoil, but modern trends like rising debt and shaken faith in the European project make them all the more worrying. If Rome could stabilize its politics, pursue fiscal reforms without resorting to austerity, and augment its role in foreign affairs, it could shake many of the stumbling blocks and fault lines which have grown to characterize its civic identity. Draghi certainly has his work cut out for him, but could begin to tackle these challenges if his premiership ultimately proves successful. Thus, the hope for Italy is not that he is simply triumphant, but that he is transformative.

The Modern Midas: How Mineral Economies Hinder Political And Economic Progress

Upon cursory review, the prospect of striking large amounts of mineral wealth appears to be a cause for celebration, evoking romanticized notions of great periods of developmental transformation, like the California Gold Rush or the Texas Oil Boom. Such enticing imagery, however, only serves to veil the potentially regressive economic and social reality of such abundance. There exists a growing discourse validating the resource curse paradox, an economic theory that correlates a nation’s mineral plenitude with an inhibited rate of economic and social progress. While such a relationship might initially seem counterintuitive, upon the examination of the phenomena that underpin such a claim, one may find that there exists a substantial amount of evidence that warrants further consideration in the policy making process in relation to nations dependent on resource rents, especially those in the oil-saturated Middle East. 

Defining the Resource Curse and the Nature of the Rentier State

First coined in 1993 in his book Sustaining Development in Mineral Economies, economic geographer Richard Auty outlines the resource curse paradox, in which he notes that the economic and social welfare of nations wealthy in hydrocarbons and hard minerals were “inferior to those of non-mineral economies at a similar level of development” despite the flow of wealth one would expect from the additional means of taxation and foreign exchange. He explains that much of this dissonant relationship is due to the nature of a nation’s mining and extraction industries being more dependent on foreign capital than domestic labor, with most export revenue leaving the country to feed back into foreign capital investment and leaving the exporter with only residual tax revenue. Auty’s most compelling explanation of the resource curse’s hindrance to development, however, lies within his observation of how mineral economies are often at the mercy of the economic phenomenon known as the Dutch disease. Originally referring to the Netherlands’ lagging manufacturing sector, the term refers to a change in “exchange rate movements following a large inflow of foreign currency… due to a natural resource discovery… , foreign aid, or investment” and the subsequent detrimental economic impact on a country’s industrial and agriculture sectors. As a mineral economy subjects itself to large flows of foreign investment, its domestic currency appreciates to the level wherein the prices for non-mineral exports become too expensive to be competitive. Meanwhile, these periodic influxes of foreign wealth result in consumers demanding a “shift to the production of domestic goods that are not traded internationally” to accommodate increased consumer spending, ultimately resulting in all non-mineral market sectors collapsing in favor of consumer goods. Whilst there exists a counterargument that the flow of foreign capital would offset any need for other export industries through comparative advantage, one must not discount that, in allowing the Dutch disease to take root, developing nations with mineral economies leave themselves at the mercy of often volatile mineral markets amidst shrinking sectors that would otherwise ameliorate crises in the event of scarcity. There exists a visible testament to this in the form of Venezuela's ongoing financial crisis. From 2007 to 2017, Venezuela's liquid steel and automotive manufacturing industries fell by 93% and 98%, while its rice and corn production fell by 58% and 55%, respectively. Whilst these declining industries may have had their losses previously concealed with petrodollar-funded imports, the oil glut of the 2010s and subsequent reduction of Venezuela's imports by three quarters from 2012 to 2017 served to mark how truly fragile a mineral economy can be, as one may witness from the subsequent commodity shortages and scarcity that have greatly served to perpetuate the ongoing political violence. 

Whilst the long-term economic risks posed by a mineral economy’s unwillingness to diversify exports has the capability to drive developing democracies into economic ruin, it is this very same lagging development allowing other developing nations to perpetuate autocratic governments, particularly within the context of the petroleum-rich rentier state. Brought into modern discourse through the writings of former Egyptian Minister of Finance Hazem El Beblawi, the rentier state is characterized by its dependence on “external rent… to sustain the economy without a strong productive domestic sector”, more often than not through rents on mineral resources, with “the government [being] the principal recipient of the external rent”. Such a term is often used in the context of the various petroleum-exporting nations of the Middle East, particularly;Gulf States such as Saudi Arabia who possess oil profits that comprise over 90% of their respective budget revenues. Due to the state being the primary medium of distributing these mineral rents to its citizens, the government is able to freely “[distribute] favors and benefits to its population”. This, when coupled with the minimal or nonexistent taxation in most rentier states, creates an environment that is inherently contradictory to the democratic social contract of government representation at the cost of taxation. Instead, political apathy dominates as a citizen of a rentier state has little incentive to participate in civil society or agitate for social change. Furthermore, in the event that mounting political pressure does lead to calls for democratization, the state’s absolute control over mineral rents ensures that it is able to mollify any dissenting groups through favorable rent payments. One may see this phenomenon at work in the wake of the initial Arab Spring protests in Tunisia, after which the Kuwaiti government announced that each citizen would receive the equivalent of $3,500 and free food staples for 13 months, or through Saudi Arabia’s $10.7 billion social welfare increase following the fall of Hasni Mubarak’s regime in Egypt. This pacificatory of state patronage may also take a less overt form through government mandated employment, with rent-funded programs such as Saudi Arabia’s Nitaqat and Qatar’s Qatarization initiatives offering their citizens guaranteed job security in the public sector for the sake of preventing job insecurity from adding to the costs of living in an autocratic state. 

Preparing for a Post-Rentier Future 

Despite the elaborate way in which this unique form of social contract has upheld authoritarian rentier states for decades, there does exist a growing trend that indicates such regimes--particularly those in the Middle East--are to inevitably plan for a post-rentier future. With OPEC crude oil prices having fallen by 38% from 2019 to 2020 and the COVID-19 global economic crises resulting in economic contractions for the majority of rentier states, many rentier states both abroad and in the Middle East have found themselves unable to sustain their generous distribution of rents. Such crises serve a twofold detriment to the rentier state, as they not only highlight said governments’ atrophied public health institutions in favor of those that produce resource rents, but also the inability of such states to sustain its pacification measures when under economic duress. In such cases, upper-class citizens in rentier states who have offered guaranteed employment, namely the Gulf States, have engaged in an en-masse departure from their countries of origin in an effort to secure financial stability elsewhere, resulting in overwhelming waves of capital outflow. For a country directing their rents primarily towards the middle class, however, the consequences of this pressure to abandon the rentier system appear to be much more severe, resulting in explicit civil unrest. Nigerian President Muhammadu Buhari’s 2020 decision to cease the country’s long standing and popular subsidization of oil and electricity, spurred by the need to reallocate oil rents to combat the coronavirus, has resulted in the mass eruption of protests that threaten to undermine the foundations of the current Nigerian government. For increasingly youth-saturated rentier states such as Saudi Arabia, a nation with 25% of its population being below the age of 14, typical rentier systems of mollification such as state-mandated employment may find itself no longer able to guarantee employment to the eventual influx of youths entering the workforce. With the insidious regression caused by the resource curse made apparent, one must reconsider if the United States’ attempts to embargo foreign nationalized oil industries truly do serve only as mere economic retaliation. Though the United States has been criticized for its recently tightened sanctions directed towards Venuzuela’s state oil company, Petróleos de Venezuela, S.A. (PdVSA), for their admitted role in harming the nation’s economy through “accelerating a decline in oil production”, policy-makers must consider the true value of accelerating recovery at the cost of allowing Venezuela to depend on an industry responsible for siphoning its agricultural sector and leading it into its current crisis. 

Though the United States itself can hardly be considered a rentier state, policy-makers must be wary of its constituent states’ susceptibility to the resource curse, namely the states of Alaska, North Dakota, and Wyoming, who draw 72%, 54%, and 39% of their respective net tax incomes from mineral severance taxes. It is apparent that the same 2010s oil glut responsible for Venezuela's economic downfall has not left these oil-dependent states unscathed, with Alaska in particular, a state dependent on energy taxes for 90% of its general fund revenue, dropping by as much as 84% from its 2007-2013 average. Whilst the United States possesses the necessary economic and political institutions to mitigate persistent economic regression in such instances, it is necessary that policy-makers regard the reality that even the United States is not immune to the economic fragility wrought by the resource curse, and ensure that states that normally flourish from severance taxes do not do so at the expense of a diverse industrial base and neglected non-mineral industries. 

In light of how mineral wealth gnaws at the foundations of the democratic social contract and supports regimes built upon apparati of repression, one must use this knowledge to both understand future global trends concerning the rentier state and the operational possibilities such an understanding offers. For rentier regimes that have indicated that they are ready and willing to diversify their economy in preparation for a post-rentier future, it is recommended that the United States  accelerate this transition via selective multilateral trade negotiations. However, the United States must also prepare itself for the inverse concerning rentier regimes expected to enter a period of mass civil unrest following the collapse of the rentier system if it is to successfully prevent possible regressions into failed states.

Notwithstanding the presence of a strong social contract and relatively stable democratic institutions, the United States must nonetheless acknowledge its constituent states’ susceptibility to the economic vulnerability wrought by the resource curse, and is urged to take any steps it deems necessary to diversify its local economic sectors. In regards to its dealings abroad, however, it is apparent that the US may capitalize on the rentier state’s dependence on mineral wealth through embargoes on such goods, forcing any repressive regimes build upon the rentier system to diversify their economy and subsequently develop in a way that facilitates a civil society conducive to democratic ideals.

For a Few Rocks More:

One day, the stars and planets we look at will look back at us, for there will be people on these far off rocks. Space will change everything; it will probably change your life, and it will definitely change your kid’s life. What the internet was to Generation Z, space will double or triple in impact. Its presence will permeate every aspect of our lives to the point of cliche (if it already isn’t). Yet, when space is mentioned, it is talked about as a “few acres of snow,” to quote Voltaire’s satirically disparaging description of North America in Candide. However, just like North America, space is the next “few acres of snow”that will come to massively influence the lives of everything and everyone.

Talking about space as a real thing that humanity will inhabit seems wacky and far away, but we are in the middle of the exploration phase. When the expansion phase comes, then we will realize how much potential is just above us, in the vastness. Space is massive, larger than any human can possibly imagine, so when I refer to space expansion, I’m referring to an expansion within our solar system. Nevertheless, going into space and building colonies will fulfill cultural milestones, make trillions of dollars, influence great technological advancements, and, tragically, stain the sky with blood. Will all this energy dedicated to space settlement improve society? Why go into a region that is ridiculously difficult and expensive to access when we are packed to the brim with huddled masses demanding food, water, healthcare, and shelter? Why jump to the sky when the foundations we lift off from are as shaky as the spaceships we will hurtle into space? 

The answer to the question is that the fundamentals that shape our current global society make space travel inevitable. Globalization, growing populations, exponential resource consumption, and capitalism generally incentivize expansion. The issue then is whether this expansion into Space is a positive or negative trend. I hope, and I believe that the offerings of Space that we use will be a net positive for the average citizen of the world. Space has the potential to stimulate life-saving innovations, economic prosperity, sustainable resource acquisition, and even cultural reinvigoration. 

However, the key word is net, meaning that just because Space can benefit society, does not mean that benefit will be distributed roughly equitably or that Space will benefit us all. Maybe, in a hawkish act of hubris, some mustachioed military advisor will use a military space satellite and laser the fertile soil of Earth with the devastation of a nuclear bomb. 

Whether the changes will be net good or bad (I think it’ll be net positive), the changes from space exploration will change the DNA of our society, and, due to safer and more targeted genome editing, probably ourselves. Governments, including the one in Washington, should start planning for this eventuality now, with state and local governments following up in a few decades. A planned out grand strategy for space affairs and expansion will mitigate costs from the monumental changes that await once our spaceships bathe in the voluminous rays of Sol. 

The Timeline of the Second Age of Discovery 

Is 1961, the year Yuri Gagarin became the first man in space, the new 1492? Look at the timeline a certain way, and the comparison is strikingly prescient. In 1492, Columbus sailed the ocean blue, and “discovered” the new world. 115 years later, colonists from the Virginia company would land on foggy shores in the backwaters of the Powhatan confederacy and found Jamestown, the first permanent English settlement in the Americas. Following the Jamestown timeline then, Jamestown: Mars edition should be a thing in 2076, exactly 115 years after Gagarin made his earth shattering voyage.

Is the metaphor perfect? No, old world colonization and conquest of the New world began around the early 1500s, but the Jamestown comparison creates a strong framework to think about the phase we’re in around space exploration. 

Space travel is a cost-inhibitive exercise. SpaceX’s Falcon 9 rocket has been praised for dropping the price to send an object into Space to just $2,720 per kilogram. That’s a big drop from the past, but just that cost, combined with laborious construction, testing, and maintenance requires large investments, meaning that only entities with a lot of capital can build the infrastructure required for space travel. The same was somewhat similar in the Age of Discovery where building colonies was capital intensive due to the large amounts of ships, supplies, and people that were needed to maintain a permanent settlement. 

In both situations, private companies (the Virginia Company in 1607, SpaceX & Virgin Galactic today) worked with their respective governments to maximize legality, capital and synergies. Just like the first settlements and expeditions into America, space exploration will not initially be dominated by the private or public sector, because both sectors benefit from a partnership. 

It may feel strange to dedicate thought, time, and money into space exploration when the world is already so chaotic and complex, but I imagine that Europeans must have thought the same way during the 1500s. The Renaissance was in full force lifting the non-Byzantine & Islamic parts of Europe from the “dark ages.” The Reformation, along with its court intrigue, wars, religious fanaticism, and social upheaval ravaged the attention of millions of Europeans. At the battle of Mohacs, the Ottomans reached their territorial zenith, and were then decisively halted 50 years later at the battle of Lepanto. The Gutenberg press introduced new methods of mass communication, and led to the aforementioned Reformation. In England, Henry VIII was busy deciding whether to divorce, behead, or remain with his wives. To many in Europe, just like today, the colonization of new lands was a sideshow viewed with varying degrees of interest by the general public. 

Just because space may seem like a sideshow, doesn’t mean it will remain as such. Sooner or later, I’d contend in 30-50 years, it will be put on center stage. As mentioned earlier, there are a variety of economic, social, and demographic factors that will drive space expansion. Put even more simply, there’s a lot, like in the trillions a lot, of money to be made in space, and that money will drive investment in Space and send us into the stars.

The Fattest Cash cows Float in the Vacuum

There are several major industries associated with space. The most developed are telecommunications (you’re reading this article on a phone which is only connected to the internet through a satellite in space) and scientific research. The next are defense and space tourism, both of which I’ll discuss later. However, the two big future industries that will make trillions of dollars are space mining/resources, and space colonization. The colonies in Space are a bit farther away from space mining operations, but the local economy that will be created from these colonies will be incredibly high-risk, high-reward long-term investments that will attract venture capital like a moth to a flame. 

Regardless, the biggest money makers in the foreseeable future of Space will be in mining operations on the practically limitless amount of rocks orbiting the Solar System. Goldman Sachs, Neil deGrasse Tyson, and Ted Cruz have all argued that the first trillionaires will get this insane wealth through space mining. The most obvious thing that can be mined on these rocks, most of which are asteroids, is an unearthly amount of precious metals and minerals. Gold, Copper, Platinum, Silver, the metals that are the backbone of all industrial nations, are all present in inexhaustible quantities. Just one large, rich asteroid would crash the market for these metals if it would be stripped of its metals immediately. There are dozens of asteroids in very close proximity (relative to space) to Earth that have billion dollar valuations, and the potential profit from these asteroids at current prices would be in the trillions.

Like many things in life, the reality of asteroid mining is orders of magnitude more complicated and expensive than on paper. One method to mine asteroids would be to physically push them into the Moon or Earth’s orbit, and mine them from this closer distance. Even so, all methods will be done mostly by automated spacecraft. 

Space agencies have experience landing automated space drones on asteroids. In December, a Japanese spacecraft will return with an asteroid sample, and on October 21st, NASA successfully put a spacecraft on the Asteroid Bennu, a tiny rock the size of the Empire State building. The craft should return to Earth with a sample of Bennu by 2023. In 2022, NASA plans to launch its Psyche mission which will send a probe to the near metallic asteroid Psyche 16. While technologies to mine asteroids are there, they haven’t been combined effectively enough to do so for a profit. 

Nevertheless, large mining companies are looking into Space as a long term strategy. Collecting rocks in Space will be a laborious, though eventually profitable industry combining the efforts of private mining companies, national government, space agencies, and private space companies. This current lack of technology to mine asteroids will stunt growth for some time, but that will change once the technology is created. The boom is coming: Just wait. 

There’s another, equally pragmatic but not as short-term profitable reason for asteroid mining: Climate change. Mining is incredibly toxic to the environment. It’s a major fossil fuels emitter, it’s incredibly resource intensive, and the pollution of some mining operations have turned local ecosystems into toxic wastelands. By offplaneting mining operations, vital minerals and metals can be extracted in an environmentally friendly way because the extraction isn’t happening in a terrestrial environment. Spaces, once used for mining, can be transformed into natural reserves, parks, commercial space, or housing. There’s another

In Space we find the elixir of life in great quantities: water. Currently abundant on Earth, water exists in even greater amounts within our Solar System. Mining water may seem redundant, because Earth is full of water, but having water in Space will incentivize space exploration, space expansion, and conflict mitigation all while making a hefty profit. 

Ground into its elements, water is just two hydrogen atoms and one oxygen atom. It’s this hydrogen that has a purpose: As Hydrogen fuel. This technology already exists. It’s used, albeit in different forms, in cars as a fuel cell and as rocket propellant. Creating a hydrogen supply chain through Space however, could be revolutionary in the revenue it generates, and the expansion in Space it would streamline.

What would a space-based hydrogen supply chain look like? There are multiple ways in which it could take shape, and depends a lot on technological discovery, and industry/government investment. However, I’ll adapt one postulated Bloomberg TV and mix in other sources and discoveries.

Imagine, a white, speckled dot surrounded by a sea of multifarious illuminations approaching in the distance. A spacecraft’s thrusters are seen going into a slow burn as they gracefully pivot into a landing position. Just over the crest, a bright gleam emanates from a metallic, plastic creation on the surface of the moon. Set to synthwave, a mining colony, almost completely robotic, comes into full view and reveals itself in its barest glory. It’s the beginning of a fascinating operation.

There’s a variety of things to be mined on the moon. Rare earth metals which can be used from everything to buildings to computer processors, Helium-3 which can be used for nuclear energy, and water which is what I’ll be focusing on. Water on the moon exists primarily on the poles, but a recent landmark discovery found water on the surface of the moon. Once mined, the water is separated into hydrogen and oxygen and the hydrogen is converted into a fuel. Then it is carried by rockets to a refuelling station in between the earth and the moon or in low earth orbit (less than 2000 km from Earth). Alternatively, these cargo rockets can carry hydrogen fuel back down to Earth where they can be used to fuel trucks, busses, trains, or cars.

These refuelling stations are incredibly important as they act as gas stations in space. Spacecraft and satellites need not carry all the fuel they plan to use or rely on costly launches from Earth. Launching spacecraft from Earth is expensive because Earth’s gravity and atmosphere are hard, and thus expensive, to break through. On the moon or a large asteroid these worries are greatly diminished, making them cheaper long term options to build colonies after a risky initial investment. Thus, not only could we make orbital hydrogen stations, but we could also cost-effectively supply them with a lunar mining colony. 

An orbital hydrogen station, our gas station in space, could greatly increase the capabilities of private space companies and space agencies to explore and colonize the solar system. Ships won’t need to carry as much fuel. They’ll need enough for launch, and then can immediately refuel to travel in Space where there is much less gravity and fuel goes much farther. Therefore, future spacecraft can be designed to store more cargo and passengers. 

Additionally, a refuelling station can mitigate the space trash problem. Most satellites in low earth orbit are decommissioned and left to float in orbit when they run out of fuel. The ISS is a notable exception, but it’s still an exception. These floating metal husks contribute to a growing space trash problem where remnants of rocket boosters and satellites can fall from the sky (though most burn up in our atmosphere) or destroy existing satellites. By refueling satellites from hydrogen mined on the moon or an asteroid, space agencies will increase the functionality of their satellites. This saves money, and greatly reduces space waste.

This is all possible with available technology and some surprisingly cheap investment. In a report by over a dozen industry experts, they made a case that a hydrogen propellant production facility would take only 4 billion dollars (about the same cost as a Las Vegas luxury hotel) of initial investment to complete a project that would eventually generate 2.4 billion dollars annually. The biggest problem wasn’t technological or financial, the authors argued, but rather of capability. No single organization can do this by itself, but with cooperation between government space agencies, private space companies, and other related industries (mining & chemical), this project is ambitious and risky but feasible. 

The specifics of what happens next are murky. The farther into the future one looks, the harder specific predictions are to make. However, the infrastructure that’s built to support space mining operations are conducive towards the construction of space settlements on asteroids, the moon, and the big, red prize: Mars. 

The mining of metals allows newly built settlements to have nearby accessibility towards construction materials, which would complement hypothetical 3D printing capabilities already on board the spacecraft. And mining water would provide new settlers with a self-sufficient water supply which would reduce dangerously unreliable and expensive logistical support from Earth. Moreover, water can be used to grow crops, can be turned into oxygen, and can, of course, be used in conjunction with solar panels to produce local energy.

The financial opportunities from Space are large from the outset, and will continue to expand as technology advances, and as settlements are created. After all, these settlements will desire goods and services which will likely be facilitated by a capitalist economic structure, or at least AN economic structure. That means that new companies will be created and old ones will expand to fulfill these new demands. Jobs will be created to make sure these demands are completed. The physical expansion into Space will force a supplementary economic expansion, and that will be a net societal benefit.

This is what I mean when I explain the likely inevitability of expansion into Space. Physical expansion fueled by scientific and financial opportunity will create an economic expansion which will bring in more people and start a positive feedback loop. The UN estimates that by 2100 the world population will peak at 11 billion people. These new people will want to live somewhere, and they’ll want to live with the same access to goods and services that is found with most abundance in the Global North. 

By 2100, space colonies won’t take in these extra people, but they’ll create an infrastructure for that to happen, and free up key spaces. Land intensive industries may offplanet, freeing up land in addition to being more eco-friendly, and new resources and industries created through space exploration and expansion will enlarge the global pie of resources and access to luxury goods.

We are in the Jamestown timeline 2.0, and the incentive to keep going in this expansive direction exists from an environmental, financial, and as will be discussed, cultural perspective.

The Cosmic Golden Age

For Space to be an important aspect of the culture, it must first filter into the mainstream culture. This is already somewhat the case. Science Fiction novels like Asimov’s Foundation series, Heinlein’s The Moon is a Harsh Mistress, and Liu Cixin’s The Three-Body Problem and shows like Star Trek, Babylon V, and the Twilight Zone have influenced policymakers, entrepreneurs, and cultural influencers of today. However, space travel is presented as a fantasy or future fiction to think about later. In the future, Space won’t be in the future because the discoveries and achievements made in the Cosmos will be part of that present discourse. Space travel will slowly be presented as more realistic and less futuristic. 

The, anybody-can-go-into-space narrative will somewhat ironically first be portrayed by the elites through the form of space tourism. Though they won’t be the only non-Astronauts to go into space- the Challenger shuttle was, before it tragically exploded, supposed to transport the first teacher into space- they’ll be the first, largest, and most publicized group of non-Astronaut individuals to break free from Earth’s gravity. 

SpaceX, Blue Origin, and Virgin Galactic, the three big private space companies, are all making the infrastructure for space tourism to happen. All of them will have flights around the end of the decade, but the tickets are in the hundred thousand dollar range, and thus will for a time be only accessible for the billionaires. 

Nevertheless, the media coverage on Facebook, Instagram, TMZ, and cable news will be such that if marketed well these billionaire astronauts will inspire a common dream for people to also want to go to space. If Dwayne Johnson, Taylor Swift, Elon Musk, and MrBeast go to space, many people would want to follow in their footsteps. 

The cultural desire that the elite would first get to experience and then permeate into the mainstream is the tip of the iceberg of space’s cultural impact. The actual iceberg could be the golden age created from space. It’s an argument rooted in history. The core benefits when the periphery of a state enlarges. Essentially, the core of a state benefits when the state’s periphery, the area around the core, gets larger.

Europe went through the Enlightenment, and the Industrial/Scientific revolutions as it expanded during the Age of Discovery. Rome’s success was derived from its massive conquests. The Inca’s achieved their very brief golden age when Pachacuti and his successors blazed through the western South America. The Han of China achieved their golden age when they conquered the Xiongnu. Each case has their own exceptions and contextual considerations, but the common thread is that as these states expanded, the core benefitted. Economies grew, order was maintained, and a cultural flourishing began. In this sense, as many of Earth’s nations expand into space, they will reap the financial and cultural rewards of this new land.

There are two criticisms of this core/periphery dynamic that space expansion avoids to a large extent. First, is that as a multipolar world expands into space they will fight over resources. Secondly, past expansions have nearly always been morally inhumane. As Tacitus (technically Calgacus said it but Tacitus probably made it up so I’m attributing it to him) famously described Roman conquest, “they make a desert and call it peace.” European colonial states, Chinese imperial states, the Aztecs, the Songhai, the Mongols, and the Caliphates of the Arab world all achieved their expansion through a variety of methods, one of which included brutal, bloody, exploitative conquest. 

The first is a more valid concern in Space, but remember, there is infinite space in Space. As humans get farther and farther away from Earth, there’ll be more and more uninhabited space to build mining colonies and settlements. Constant expansion is sustainable because there’s no end to space.  There’s no need for conflict if one’s possible opponents are looking for resources in a completely different direction from Earth. There’ll be less conflict during Earth’s forays into space because states have some scientific, moral, and economic incentives to collaborate. It’s more cost efficient and moral if China, Russia, and the US collaborated to put a colony on Mars than if the three fought over who goes where. However, in the initial stages, when only a few asteroids, moons, and planets are effectively colonizable, there could be room for conflict, and that’s a genuine threat policymakers will have to manage.

The second is, fortunately, less likely simply due to the fact that nobody lives in our Solar System. There might be aliens, but they’re either bacteria that won’t do much besides inspire more people to go into space and study it. Or, they’re aliens so powerful that there’s no counterplay against them except hope they don’t care enough to exterminate everyone. Besides these unlikely possibilities, there’s nobody to conquer, no one to enslave, and nothing to kill. This simple fact will make space colonization much less bloodier than anything Europe approached in the 16th-19th centuries. 

However, just because no one lives outside of Earth’s orbit now, doesn’t mean that in the future space colonizers will become unwilling indentured servants, or suffer from similar forms of exploitation. These concerns will be addressed in the second installment of this article, but when looking at net outcomes, more people will benefit than they will lose from the coming centuries of space exploration and expansion.

Space will revitalize stagnant cultures with common dreams and goals. New jobs, new money, and new technologies will create new industries for people to be creative with and to thrive in. The philosophers will have a field day, the scientists will literally have a field day, and the entertainment industry will film, mock, and write about both having their field days. How this golden age will specifically manifest itself is unpredictable, and how much the gold will shimmer depends on how the bounties of space are managed by policymakers and society writ large, but it can be a golden age.

Conclusions from the Bright side of the Moon

Whether our society becomes more or less dystopian in the next century is difficult to predict. Books have been written on the subject for centuries, and while some predictions are prescient, some are wildly off the mark. However, I believe that space, in the hundred years, would mitigate a dystopia, not enhance it. Sure, technology developed from space colonization may be used by malicious actors, but the predicted trends don’t indicate that this will outweigh the social gains from Space.

Nevertheless, these negative possibilities may happen, and thus deserve to be discussed. Wherever there is the possibility to fail, governments should create policies and strategies to mitigate these shortcomings. I plan to do so in my next segment, where I’ll talk about the reverse of space colonization, and what may happen if malicious actors game the political, economic, and social systems that exist within space and the ones that interact with Earth. The Moon may be bright, but travel into the land where the sun don’t shine, and there is a vast, haunting dark side.

Lesbian Identity in Patriarchal Capitalism: Contradictions of Capitalist Modes of Production

In 1993, the Lesbian Avengers marched on Washington DC, “a direct-action group focused on issues vital to lesbian survival and visibility”. They were new, they were edgy, and they were sexy. The national narrative was that of a Copernican pop culture revolution, with sapphic love smack dab in the center. The Rolling Stone magazine called lesbians “The Hot Subculture”, while other publications were pumping out articles about “lesbian chic”. At first glance, one would think this marked a turning point in the American public’s acceptance of homosexuality. But some at the time were skeptical, pointing out that there was something missing from this supposed revolution: lesbians. The portrayals at the time were not centered around lesbian women, but on the concept of lesbians as an object, a fashion trend, an aesthetic. “The Message?”, Kara Swisher wrote in 1993, “America, come say hello to lesbians – they’re hot! Sexy! Out there!”. Was this truly a step forward, or were the old lesbian stereotypes of the hairy-legged, man-hating hag merely being traded out for fresh new ones? 

The sexy, trendy lesbian is common in todays media. In a series of interviews with lesbians about the “lesbian” category of porn, many women pointed out that lesbian porn was not made for lesbians, but for men. One woman spoke about a time at a party where she kissed her girlfriend, and a male stranger took the opportunity to tell her how hot it was, “like it was for him, and not because we were in a relationship”. To many people today, “lesbian” is more likely to evoke a category of porn than a category of human. The cultural acceptance of lesbians we see today is not as liberatory as it is often portrayed; rather, it is an attempt to appropriate the resistance to the contradictions of patriarchal capitalism. To explore this, we can examine the historical development of homosexual identity, and produce a framework for understanding how lesbian identity is constructed today.

Lesbian, historically, has meant a number of things. In the same year as the Lesbian Avengers march, Senator Jesse Helms justified his vote against Roberta Achtenberg for assistant housing secretary with the now infamous sentence: “Because she’s a damn lesbian”. At the time, lesbian as a term for woman who got ‘too uppity’ was common and had been for a long time. But while the history of categories of sexuality is long, it is not as long as many think. In fact, the terms “homosexual” and “heterosexual” were coined in the 1860’s. To understand what Lesbian means today – and it means a number of things – we have to understand how we got here. The answer has massive implications for not only the gay liberation movement, but for the entirety of the modern capitalist system.

There is an important distinction that must be made here between the act of sex, and sexuality. It is the distinction between sex as an act of reproduction and sex as a desirous act performed autonomously. The act of sex is ahistorical, present throughout human history. Sexuality, however, is historical. While sex as an act has been present in every species which reproduces sexually, it was only at a specific historical moment that humans began to attach societal meaning to that sexual instinct. It is a modern development.

Saying that sexuality is a modern development is not saying that we only recently developed sexual desire, but that only recently has sexual desire been constructed as a societal concept rather than and individual experience. Many modern modes of thought which attempt to apply contemporary understandings of sexuality fall flat against this. Today, the primary sexual division is that of homosexual/heterosexual, but that was not always the case. Instead, the division was between procreative and non-procreative sex. While that division is often interpreted in the context of modern concepts of sexuality, this is a mistake. It is a conflation of homosexual behavior with homosexual identity. Homosexual behavior refers to the ahistorical act of sex, while homosexual identity is the application of social meaning to that act. Homosexual activities in private occurred, but to quote John D’Emilio, “there was, quite simply, no ‘social space’ to be gay’”.

This is most prominent in an examination of legal systems approach to sex. Foucault, in The History of Sexuality, points out that the ways that historical societies discussed sexuality “were all centered on matrimonial relations”. This phenomenon extends further and is especially enlightening in reframing discussions of what is often labeled as homophobia, allowing us to understand it in the context of procreation. In colonial England, the average birthrate was over seven children per woman of childbearing age. The labor of children was needed for the family unit to act as it did, a self-sufficient organization. John D’Emilio writes, “Sex was harnessed to procreation. The Puritans did not celebrate heterosexuality but rather marriage; they condemned all sexual expression outside the marriage bond and did not differentiate sharply between sodomy and heterosexual fornication”. 

This is further supported by the original definitions of heterosexuality and homosexuality. Up until 1934, heterosexuality was defined as “morbid sexual passion for one of the opposite sex” by the Merriam Webster dictionary before being redefined as “normal”. The cause of this transformation can be attributed most clearly to the economic changes stemming from the industrial revolution. No longer did one need a large family to reproduce a personal workforce, and so sexuality was released from reproduction. If you can work for a wage in a factory all by yourself, the economic need to create children to support you was gone. The conditions for the formation of a homosexual identity came into existence in the form of the capability of an individual to make a living outside of the heterosexual family. Capitalism’s individualistic ideology, a result of an economic structure which drastically reduced the lower classes reliance on others for their own survival, changed the social order which had made the family the primary home of socially recognized sexual activity. The formation of the concept of sexuality was not the result of the creation of sexual desire, but of the social recognition of existing desire which was brought about by the industrial revolution. In short, economic agency is a necessary preliminary for the social recognition of desire.

This, however, poses a fairly perplexing question. “How is it”, D’Emilio asks, “that capitalism, whose structure made possible the emergence of a gay identity and the creation of urban communities, appears unable to accept gay men and lesbians into its midst?”. Despite the individualism it perpetuates, capitalism cannot be seen as antagonistic to the heterosexual family – in fact, it is the opposite. Capitalism is reliant on the family. For the property-owning class, the family created a system for passing on property, while the proletarian family is needed to reproduce the workforce. Any economic system must be able to reproduce its means of production, and an aspect of that is labour power. If the system uses more than it can create, it will not last, and so for that system to maintain itself it must contain the means of its own reproduction. When it comes to labour power, the means of reproduction is the family unit. The family creates children and sets them up to become laborers themselves. 

As Friedrich Engels explained in The Origins of the Family, Private Property, and the State, modern marriage in capitalism turns the family into a primarily economic institution. “[The monogamous family] was not in any way the fruit of individual sex-love, with which it had nothing whatever to do; marriages remained as before marriages of convenience. It was the first form of the family to be based, not on natural, but on economic conditions – on the victory of private property over primitive, natural communal property”. As he points out, literature in the past which referred to love, and romance invariably did so in the context of infidelity. “This first form of individual sexual love, the chivalrous love of the middle ages, was by no means conjugal. Quite the contrary. In its classic form among the Provençals, it heads straight for adultery, and the poets of love celebrated adultery”. Marriage was economic, and love played no part in it.

But, again, while capitalism does rely on the family, it is ideologically antithetical to it. The family is collectivist, while capitalism is individualistic. It is a contradiction at the heart of our economic system, an ouroboric crisis at the core of our systems of production, one which systematically degrades the entire concept of the family. The destruction of the family has been a common talking point in western politics for at least the last two hundred years. In the 19th century, proletarian women entering the workforce resulted in a scandalized middle class concerned by the perceived threat to family life. Anti-suffrage propaganda often made use of similar language, portraying suffragettes as unwed bitter spinsters. And today, homosexuality has been similarly blamed for this timeless war on the family. The family is a central institution of modern society. It is the institution through which our society, and more importantly, our workforce, is reproduced. There is a reason its destruction is such a subject of fear – its collapse would pose a massive existential threat to our society.

This is the framework by which we can understand the historicity of heterosexism within capitalism – not as ex nihilo, it does not come from nothing, but as a natural consequence of a contradiction within capitalism. Capitalist individualism, which created the conditions for the formation of homosexual identity, is a threat to itself and to its reproduction, making obsolete the very structures by which it perpetuates itself. While bourgeois marriages serve the function of retaining wealth in the upper class through inheritance, inheritance has no meaning to the class which owns nothing. This contradiction is deadly to capitalism, and so capitalist ideology reinforces the idea of the family in abstract terms, no longer a source of economic utility, but a place to find personal emotional value and to satisfy our need for intimate relationships. This façade has turned love and the family into euphemisms, categories used to protect capitalist reproduction.  

The entire process of reproduction is made up of similar contradictions. As D’Emilio points out, society continues to view childrearing as a private process, of parents as the owners of their children and as responsible for their lives, yet childrearing is largely socialized in education, media, and other industries which reproduce children not in terms of their physical birth but as vessels for capitalist ideology. And it is in this contradiction that the need for homophobia forms as a natural consequence – capitalism is internally unstable as a result of the contradiction between its individualism and its need for reproduction, and so it passes on the blame. When homophobes talk about the destruction of family values, they are not wrong. The family as we know it is being destroyed, but it is not feminists, lesbians, or gay men who are responsible, it is capitalist individualism. 

And this is not the first time for capitalism. Nancy Fraser, in “Contradictions of Capitalism and Care”, explores the history of women’s rights under capitalism in the United States. She identifies three points in which the inherent contradictions of capitalism and growing sentiments of women’s emancipation came to a head. Fraser lays out three distinct historical periods defined by the ways in which women related to the economy: “first ‘separate spheres’, then ‘the family wage’, now the ‘two-earner family’”. Each of these came about after the previous social order was in contradiction with some other aspect of society to the extent that it had to be resolved, lest the entire structure collapse.

And through all of these, the institution of the family remains at the core of the contradiction, unable to justify itself against capitalist individualism. Heterosexism and homophobia are the consequences of this contradiction, forces which arose to protect and justify an institution which cannot justify itself. We are seeing an institution which still has important economic value, in that the family is needed to reproduce the workforce, but has lost its ideological justifications and is in conflict with the ideals which were formed by the very economic system which depends on it.

Lesbians in particular become the victims of this contradiction. While the presumed revolution of lesbians sparked in part by the Lesbian Avengers did change societal constructions of lesbian identity, that transformation was not liberatory. Out of the hateful frying pan, into the objectifying fire.

A Taxonomy of Lesbians

Having developed a historical roadmap of the development of lesbian identity, we can now create a taxonomy of lesbian identity to allow for a categorization of cultural representations of presumed sapphic love. This taxonomy will reveal that at the core, female desire is at best incidental to patriarchal constructions of lesbian identity, and that the true basis for these constructions is as extensions of male heterosexual desire. 

There are four forms of lesbian identity which are permissible within heterosexual modes of thought and patriarchal society. These describe not the individual experiences of lesbians, but the cultural narratives which presuppose heterosexual male supremacy and struggle to justify that supremacy within a quickly changing society. If lesbian desire can be defined as genuine female sexual desire towards women, these forms each represent ways in which it is constructed against that definition.

The first form is lesbian desire appropriated into heterosexual identity. This takes the definition and removes the “towards women” aspect and reformulates lesbian relationships as heterosexual. This is best exemplified by the heteronormative question of ‘which one of you is the man in your relationship?’ often directed at lesbians. It is an attempt to apply heterosexual gender roles upon a relationship which, by its very existence challenges those roles.

The second is lesbian desire as denied in the absence of male desire. This takes the definition and removes the “sexual” aspect, on the assumption that without male desire, lesbian relationships cannot be sexual. Where the first form solves this problem by turning female desire into male desire, this simply removes desire. The ironic concept of “Sappho and her friend” in LGBTQ circles describes a person who, upon observing explicit female homosexual desire, ascribes to it platonic meaning. 

The third form is lesbian desire as an object of male desire, objectification. This takes the definition and removes the “female” aspect, turning lesbian desire as a whole into a tool for external male desire. An obvious example of this is the fact that lesbian pornography and portrayals of lesbian sexuality in general is created with male consumption in mind. This can be confirmed easily by asking a lesbian how well they think lesbian sexuality is portrayed in media. This form removes the entire dynamic of lesbian relationships, transforming them from the relationship between two individuals into a single object for the male gaze.

The fourth form is lesbian desire as an obstacle to male desire. This takes the definition and removes the “genuine” aspect, reframing lesbian desire as an illusion in the face of the “true” form of sexual desire, which is male desire. The male chauvinist idea of “flipping a lesbian”, or that lesbians just have not met the right man yet, are not only examples of this concept in action, but testaments to how dangerous they are. Sexual assault of lesbians by men are a serious problem today and cannot be distanced from these portrayals. These perspectives on lesbian desire not only deny women autonomy over their own identities but justify violence in the name of that denial.

We could continue to provide examples of ways in which lesbians are reframed to allow them to fit into the definition of women as defined by men. The concept of “inversion”, which eventually faded into obscurity in favor of the concepts of transgenderism and homosexuality, was used to explain men or women who would show same sex sexual desire, explaining that through the idea that they must be a woman carrying male desires, or vice versa. While this concept is not in use much today, it is hardly rare to hear someone describe lesbians as being “manly”. However, the important point here is how absolutely absurd this is. The structures which contribute to the male centered definition of woman are not simple, they are not natural, and they are not easily maintained. There is a purpose for these structures that justifies them.

A very obvious parallel here is in the historical development of female identity. The first question that must be asked is, what are women? This is not as easy to answer as it might seem, as the historical context of women is difficult to unpack. How “woman” as a category is defined is a complex set of issues, issues which will be important to our point. To quote Anita Sarkeesian, “In the game of patriarchy, women are not the opposing team. They are the ball”. It is for this reason that it is even up for debate whether or not women even exist in the historical sense, if women’s existence within patriarchal societies is as an object rather than a subject.

This is the frame for our investigation into the ontology of women. We must accept that women’s existence is in some sense contingent, socially defined in relation to male power structures. Sarkeesian was referring to the example of stories where women’s victimhood acted as a plot device for the male protagonist, where the stories “[trade] the disempowerment of female characters for the power of male characters”. We can see similar tropes emphasized by the existence of metrics such as the Bechdel test, a measure of female representation which points out the dearth of stories where two women talk to each other about something other than a man. Saying women’s existence is contingent does not mean that the physical existence of people who identify as women is contingent, but that social recognition of women is based upon their relation to men. Male is the default, female requires justification.

So then, if women are truly contingent upon men, what are women without men? In The Straight Mind, Monique Wittig makes the claim that women are fundamentally others, that men are not different, but women are. The relationship between the sexes is not that of “sex one/sex two”, it is “normal/other”. “Woman” is compared to a slur, as it is a signifier which indicates oppression and has no meaning outside the context of the “heterosexual systems of thought and heterosexual economic systems” which formed them. The heterosexual relationship, which Wittig defined as “the obligatory social relationship between ‘man’ and ‘woman’”, is the only source of meaning for the category of woman. It is for this reason that she ends her essay with the infamous phrase, “Lesbians are not women”.

Skeptically accepting this conclusion for the moment, we can apply this mode of thought to history as a means of testing it. If women have historically been defined in relation to men, and if this definition was supported by and in support of the structures of society, Wittig’s argument will be supported. 

Before the expansion of our understanding of sexuality, there were two forms of built social relationships that were socially recognized. Monogamous marriage in the heterosexual form defined by Engels, and friendship. As mentioned before, on the societal level, sexual relationships outside of the economic procreative marriages were largely left alone by social structures. In those marriages, the woman was subjugated by the man, made entirely contingent to him, objectified. So, we turn to the realm of friendship to answer our question of whether or not women have been allowed a sovereign existence in any sense.

Sharon Marcus’ Between Women explores female friendship in Victorian England, making a number of claims about its nature. It begins by identifying the roles of women as defined in the 1839 book The Women of England, a female conduct book. These were “daughters, wives, and mothers”, each examples of ways women were positioned in relation to men via the familial sphere, but there was a fourth role women were allowed: friend. Between Women as a whole makes the case that the role of friendship was not just a potential aspect of Victorian society for women, but a socially recognized role. 

This places the claim that “woman” is a category only in relation to “man” in jeopardy, or at least requires it to be qualified. While Marcus explicitly rejects the idea that female friendships were “an attempt to press women’s bonds into patriarchal service”, she does acknowledge that Victorian acceptance of female friendship was “because they believed it cultivated the feminine virtues of sympathy and altruism that made women into good helpmates”. So, while women did have lives that were not defined by men, this is nothing new to our argument. The argument is not that the individuals categorized as women never exist outside of their interactions with men, but that the category as a whole is recognized by society in its relation to men. 

What Marcus shows us is not that women were socially treated as independent of men, but the opposite in fact. Those genuine friendships between women were revolutionary, they marked a shift in society. They exposed the growing contradiction between the societally accepted definition of women as being an “other” to men with the cultural move towards individualism. This is the ontology of “woman” today. Women are a contradiction, individuals within a category that does not reflect the truth of their lives. 

The sapphic non-women demonstrate this ontology. Lesbians are the ultimate opposition to the definition of women as being contingent to men, and as such pose a threat to the patriarchal construction of women as such. Like female friendship, cultural acceptance of lesbians is not a sign that the patriarchal construction of women has been thrown aside, but a sign of the contradiction. Today, the appearance of socially accepted lesbian relationships in spite of the very category of “woman” being meaningless outside its relationship to “man” represents an inherent contradiction within our social and economic institutions that is coming to light, and exposes the ways in which those structures must cover for themselves. 

What then, is the future of this contradiction? If we are to follow Nancy Fraser’s argument, as well as the point of Sharon Marcus, the contradiction female sexuality poses can be resolved only through a dramatic shift in the structure of things, as a crisis arises, a shift which is by no means inevitable. In The Perverts Guide to Ideology, Slavoj Zizek examines the turbulent history of capitalism. “Capitalism is all the time in crisis. This is precisely why it appears almost indestructible. Crisis is not its obstacle. It is what pushes it forwards towards self-revolutionizing permanent, extended self-reproduction – always new products”. Crisis and contradiction alone are not necessarily threats to capitalism. 

The situation of female sexuality is not a result of independent societal attitudes, rather it is societal attitudes which are a result of material economic conditions. The family is the result of a mode of production which necessitates constant reproduction and expansion of its workforce, and of the societal reverence given to private property and inheritance. Heterosexism and homophobia are themselves birthed out of the contradiction between the family and the individualism of the economic system it supports. Even the idea of “women’s liberation” is itself arguably contradictory. The category of “woman” is defined in relation to oppression, and so long as gender categories hold societal weight will continue to do so. It is a term that is meaningless outside of oppression. The systems which crafted the chains cannot break them, they can only dress the chains up and promise that they are gone. 

This is because the only freedom an established system can offer to those it oppresses is freedom to participate in that oppression. Chizuko Ueno, in Nationalism and Gender, described neoliberal’s offerings of equality to women as the choice of ghettoization or integration. Women are given the choice to either segregate themselves from men, to accept different treatment by society, or to integrate, and be allowed to participate in male society. But participation could never be equal, and while women could be doctors, lawyers, soldiers, they would always be second-class doctors, second-class lawyers, and second-class soldiers. As capitalist individualism sows the seeds of the annihilation of the family, the institution it relies on, neoliberal notions of equality call into question the very basis of its structure.

U.S. Policy Towards Saudi Arabia: The Up's and Down's

The United States’ (U.S.) policy towards Saudi Arabia restrains numerous determinants and interests. The U.S. considers the global market for oil, counterterrorism efforts, containing Iran, trade, and human rights when conducting policy towards the kingdom. The U.S.-Saudi relationship is significantly progressing as both countries share a number of interests in the Middle East. 

The U.S. trade in goods with Saudi Arabia has been steady since 1990. At that point in time, U.S. exports were $4 billion and imports were $10 billion, while in 2010, exports were $11.5 billion and imports were $31.4 billion. In 2019, exports so far have amounted to $8.9 billion and imports to $9.8 billion. Over the years there has been a pattern established where the total value of imports exceeds that of exports. The U.S. imports hydrocarbons from Saudi Arabia, which is a crucial component of petroleum and natural gas, making it essential for U.S. energy needs. The U.S. then exports weapons, machinery, and vehicles to Saudi Arabia. 

Historically, the U.S. was dependent on oil from Saudi Arabia. However, the U.S supply of oil has changed. As of now, the U.S. is the top oil producer and the largest consumer of crude oil and petroleum products, surpassing Russia and Saudi Arabia in the production of crude oil. The U.S. has numerous reserves with various natural resources, including crude oil. As a result of technological advancement in oil extraction, U.S. oil production is expected to increase even more in the future. Though the Organization of Petroleum Exporting Countries (OPEC) continues to be the largest oil producer, non-OPEC countries such as the U.S. and Canada will contribute significantly to the growth of world oil supply. Despite this, Saudi Arabia is still an important player in the world market for oil.  As a key member of OPEC, Saudi Arabia is able to coordinate with other OPEC members in order to control oil prices through the manipulation of the oil supply. As a "swing producer," Saudi Arabia is able to influence the world market quickly and independently with its spare oil capacity.

Saudi Arabia is more important to U.S. interests because of its capacity to change the world price of oil than as an oil exporter. Even though the U.S. is a top exporter of oil, it is still dependent on the world price of oil as part of the global market. If Saudi Arabia increases its supply, the world price of oil would fall, which would harm U.S. oil producers. For example, if the U.S. imposed restrictions on imports of Saudi oil, U.S. oil refineries would experience a shortage, as Saudi Arabia imports an estimated five million barrels a day to the U.S. While the five million barrels Saudi Arabia imports is significant, the U.S. is in a position to replace that with oil imports from Canada or domestically produced crude oil. However, the cost to U.S. oil producers from a Saudi-led price drop would be considerably more detrimental to U.S. economic interests. 

Because Saudi Arabia plays a major role in controlling the global oil market, U.S.-Saudi policy should be governed by collaborating on the world price of oil rather than focusing on imports and exports. As top exporters, the U.S. and Saudi Arabia could collaborate to meet increasing oil demands from emerging economies. According to the World Bank, as developing nations' economies grow, their demand for fuel and consumer goods that are dependent on crude oil will also increase. This allows the U.S. to prioritize energy independence without weakening relations with Saudi Arabia. In the long run, policy focused on cooperating with Saudi Arabia on regulating the global oil market would benefit U.S. economic interests. 

U.S. energy policy extends beyond oil to nuclear energy within Saudi Arabia. The U.S. and Saudi Arabia signed a Memorandum of Understanding (MOU) which represented their willingness to cooperate on nuclear activities in medicine, industry, and electricity production. In 2018, Secretary of Energy Rick Perry and Minister of Energy, Industry, and Mineral Resources Khalid al Falih discussed the potential for civil nuclear engagement, including new technology sharing. In 2019, the Trump Administration stated that it would share its nuclear technology if Saudi Arabia agreed to International Atomic Energy Agency (IAEA) inspections. The U.S. must be especially wary of Saudi attempts to develop nuclear weapons considering escalating tensions with Iran in the aftermath of the crumbling Iran Nuclear Deal. However, if the U.S. pushes too hard for the enrichment and reprocessing restrictions, several U.S. Administration officials and nuclear advocates have argued that Saudi Arabia would search for nuclear cooperation with Russia or China. Therefore, the U.S. is constrained in its ability to push for IAEA inspections, which puts them in a difficult position since inspections are essential for nuclear security. It is necessary for the Trump Administration to demand IAEA inspections, as a nuclear conflict between Saudi Arabia and Iran would be incredibly detrimental to U.S. national security. 

There have been a number of security-related events that have positively and negatively affected the U.S.-Saudi relationship. Shortly after the Cold War, the Gulf War that lasted from 1990 to 1991 strengthened U.S.-Saudi cooperation after half a million U.S. troops were deployed to Saudi Arabia in order to push back Saddam Hussein's invasion of Kuwait. At the same time, Salafi jihadism was spreading in Afghanistan and Saudi Arabia. For political reasons, Saudi Arabia suppressed the internal Salafi opposition but did not react to transnational Salafi jihadism. Saudi Arabia did not want to have a conversation about Salafism domestically seeing as it was ideologically similar to jihad and Wahhabism, an ideology central to Saudi government institutions. U.S.-Saudi relations then worsened after Al-Qaeda bombed the U.S. embassies in Kenya and Tanzania in 1998 and conducted the September 2001 (9/11) attacks. Saudi Arabia denied any connection to Osama Bin Laden including financial connections to Al Qaeda. Saudi Arabia additionally viewed the U.S. negatively after the Iraq and Afghanistan wars.

Despite these events negatively affecting the U.S.-Saudi relationship, they have partnered together in counterterrorism efforts. For example, Al-Qaeda campaigned against the Saudi Arabian regime and conducted terrorist attacks there in 2003. After Saudi Arabia condemned Al-Qaeda following the 2003 terrorist attack, the U.S. cooperated with the kingdom in intelligence sharing and eliminating financial sources to jihadist groups. Like the U.S., Saudi Arabia views Al-Qaeda, Al-Qaeda's affiliates, ISIS, and Salafist-jihadist groups as a threat to Saudi national security. The U.S. believes that Saudi Arabia has improved its counterterrorism efforts since the 9/11 attacks, and it has been more involved in cooperative initiatives. For example, Saudi Arabia co-chairs the Counter-ISIL Finance Group of the Global Coalition to Counter ISIS, and since 2014, Saudi Arabia has prevented Saudis to travel abroad to support terrorist groups. In 2017, Saudi officials stated that they plan to contribute to stabilization efforts in Syria and get involved with Iraqi leaders. U.S.-Saudi relations also continued to cooperate because they have a shared interest in containing Iran, as it remains both a threat to U.S. interests in the Middle East and a rival power of Saudi Arabia. 

It is necessary to examine the policies that continue the counterterrorism alliance between Saudi Arabia and the U.S. because they face similar threats from common enemies. The U.S. benefits from having a counterterrorism partner in the Middle East, especially from a wealthy nation that has significant political influence over Arab states. The U.S. should ally with Saudi Arabia to contain Iran, especially because of the current high tensions between the three actors. U.S. and Iran tensions have recently escalated after potential military attacks and an Iranian shootdown of a U.S. drone over the Strait of Hormuz. If the U.S. were to get into a military confrontation with Iran, it is in U.S. national interest to cooperate with Saudi Arabia, where it could access Saudi air space and bases for troops. Thomas Lippman, Adjunct Scholar at the Middle East Institute, claims that Saudi Arabia is not crucial for U.S. security interests because its military capabilities are limited. The U.S. holds naval headquarters in Bahrain, maintains a large airbase in Qatar, and has troops in Kuwait and Djibouti, among many other areas. He claims that the U.S. should go by an "issue-by-issue basis" with Saudi Arabia, rather than maintaining a close partnership. I disagree with this point; even though the U.S. has strategic military bases in numerous areas in the Middle East, Saudi Arabia is still an important asset for intelligence sharing, and using it for additional military space would be an added benefit of partnering with them.

Though Saudi Arabia has limited military capacity, the U.S. conducts arms sales and training and service support to strengthen the Saudi military. For example, there is the United States Military Training Mission (USMTM) in Saudi Arabia and the Saudi Arabian National Guard Modernization Program (PM-SANG), which supervises U.S. defense cooperation with Saudi Arabia. In May 2017, President Trump indicated that the U.S. would continue strengthening bilateral defense cooperation with Saudi Arabia through arms sales. In 2019, Secretary of State for Political Affairs David Hale went to Saudi Arabia to meet with the Saudi Deputy Defense Minister Khalid bin Salman Al Saud and Minister of State for Foreign Affairs Adel al-Jubeir. Secretary Hale emphasized the strong U.S.-Saudi partnership and shared interests in working with other regional partners to contain Iran's influence over the Middle East, as well as promote security and stability.

Encouraging dialogue between Saudi Arabia and Qatar is also in the U.S.’s security interests. Saudi Arabia has had a rocky relationship with Qatar for over twenty years as they have been concerned over Qatar's ties with Iran, in which Qatar provides natural gas reserves. In 2017, Saudi Arabia cut diplomatic relations with Qatar, closed its land borders, air space, and waters to Qatari vessels, and disallowed Saudi nationals from visiting Qatar, as well as demanded Qatari nationals to leave Saudi Arabia. Saudi Arabia had claimed that Qatar supported terrorism, interfered with the domestic affairs of other Arab countries, and supported Iran's push to destabilize Saudi Arabia.

This is of significant concern to U.S. security interests in the Middle East. The U.S. has close defense cooperation, including in arms sales, with both Saudi Arabia and Qatar. Because the U.S. has major facilities in Qatar, it is in the national interest to attempt to fix Saudi Arabia's relationship with Qatar, as this broken relationship is unsuitable for U.S. security interests. If the two states went into military conflict, the U.S. would be in a difficult situation because it has defense cooperation with both countries. Picking sides would further the conflict and severe one or the other relationship.

Another current event pertaining to U.S. security and human rights interests in Saudi Arabia is the Yemen Civil War. The Trump and Obama Administrations have diplomatically supported Saudi Arabia's attempts to reintegrate the Hadi government, and have also provided logistical and intelligence support to their military operations. The Saudi-led coalition has contributed to Yemen civilian casualties, a humanitarian disaster, a blockage on the flow of goods and humanitarian aid to Yemen, the empowerment of Al-Qaeda and the Islamic State, and Iranian support for the Houthis. Following a Saudi airstrike that killed numerous children in 2018, Lieutenant General Michael Garrett went to Saudi Arabia to pressure the government to investigate this accident. The Saudi-led coalition found that the accident violated the coalition's rules and recommended that it comes with punishment. Secretary of State Mike Pompeo additionally stated to Congress that authorities from both Saudi Arabia and the United Arab Emirates are taking action in preventing the danger imposed on Yemeni civilians and infrastructure. 

U.S. arms sales and military support to the Saudi-led coalition have sparked debate within U.S. Congress. Proposed foreign military and commercial arms sales aligning with the Arms Export Control Act (AECA) have been criticized by several Congress Members because Saudi Arabia has been using them for airstrikes in Yemen, which violates international humanitarian law. Congress has also attempted to investigate an instance where an exception was made under the AECA, allowing the Trump administration to continue selling weapons to Saudi Arabia without a required congressional review period. Those critical of the arms sales argue that the U.S. should instead share more advanced U.S. technology and increase training and intelligence support to the Saudi air force. Other members offered for the implementation of conditions for the Department of Defense activities and U.S. support for the coalition. Another proposed solution is for President Trump to withdraw U.S. military forces from Yemen missions. Numerous members proposed to require more oversight reporting on U.S. activities, disallow deployment of U.S. military personnel or U.S. funds to be used for specific goals in Yemen, and prohibit sales of a specific type of weapon to Saudi Arabia. On the other end of the debate, several members argue that U.S. support lessens Yemen civilian casualties by encouraging more human rights.

The U.S. is in a difficult position in the Yemen conflict. On one hand, both U.S. officials and Saudi Arabia have concerns about the Houthi movement due to its ties with Iran. Houthi forces additionally operate cross-border attacks to Saudi Arabia, which also threatens American citizens there. Both countries are concerned about armed threats from Al-Qaeda and Islamic State supporters in Yemen. Despite these concerns, there have been civilian casualties, mass displacement, and infrastructure damage caused by Saudi intervention using U.S. weapons. 

There should be a sense of compromise to this debate. The U.S. should not discontinue arms sales to Saudi Arabia. If Saudi Arabia does not purchase U.S. arms, it will seek out other partners such as Russia and China. Russia and China would be less likely to have human rights concerns in Yemen and would not make any effort to hold the Saudi-led coalition accountable for its actions. However, the U.S. could terminate the sale of a specific type of weapon used in Saudi airstrikes. That way, it is a stronger signal to the Saudis that they should be careful of where they target. It is additionally important to not single out Saudi Arabia and claim that they are committing all of the humanitarian violations in the conflict. The Houthis and Iran are equally responsible. Therefore, it would not be tangible to simply discontinue arms sales to Saudi Arabia, because it would imply that Saudi Arabia is not there to bring a political solution to the issue. On the diplomatic side, the U.S. should continue encouraging a United Nations negotiated resolution that incorporates the GCC transition document which was signed and agreed to in 2011. 

Aside from Yemen, Saudi Arabia has a low record of domestic human rights as well. The Kingdom is run by Islamic sharia law, which does not allow freedom of expression, press, religion, or association, and political parties are prohibited as they are seen as going against the Kingdom. Saudi Arabia gives death sentences to crimes committed by minors and uses torture to interrogate alleged criminals and force confessions out of them. The government also unlawfully interferes with the privacy of families and homes. The government decides which media content can be public in order to maintain internal security and prevent chaos or division. Jamal Khashoggi, a Saudi journalist who lived abroad in "self-exile," was murdered by government agents in Istanbul, Turkey. In 2016, Saudi authorities banned Khashoggi from writing, appearing on television, and going to conferences because he had made critical statements about Saudi government officials. Per the U.S. State Department's 2018 report on human rights in Saudi Arabia, human rights activists were detained and later released but warned not to use social media for their activism or reach out to foreign diplomats, international human rights organizations, and travel outside the country. The use of torture has also been employed against detained human rights activists, including women who fought for the right to drive.

Dana Stroul, a former senior professional staff member on the Senate Foreign Relations Committee, states that human rights in Saudi Arabia can progress with the U.S. simply encouraging change. While the U.S. does not have a say in how to run another government, their assistance can help promote long-term change. For example, the Two Holy Mosques Scholarship Program admits 50,000 Saudi students each year to attend U.S. universities, which provides them an American-style education. These students go back home with ideas they have learned through this education. Though this is a catalyst for long-term change, it is better than telling Saudi Arabia what it should and shouldn't do. If there were a situation that went against U.S. interests, U.S. policy should be direct and question Saudi Arabia's actions. For example, the U.S. should condemn and outright state that it believes that Saudi imprisoned civil-rights activists should be let out. Additionally, the U.S. must be more forward with holding Saudi Arabia accountable for the murder of Jamal Khashoggi. Overall, it is better to maintain positive relations with Saudi Arabia to encourage human rights, because if the U.S. severs its economic, military, and strategic relations, then Saudi Arabia would turn towards powers such as China and Russia, which would not have much interest in encouraging respect for human rights. 

After discussing U.S. policy and interests in Saudi Arabia, it is reasonable to argue that the U.S. should continue keeping Saudi Arabia as a close security partner in the Middle East. Saudi Arabia has the potential of being an even stronger U.S. ally in counterterrorism efforts and containment of Iran because it is a wealthy and influential nation in the region. In regards to human rights, there is a more likely chance that Saudi Arabia would cooperate with the U.S. rather than other powers, which may not consider the issue. Lastly, it is important to maintain economic relations with Saudi Arabia for the world market for oil and to take advantage of emerging economies in the long run. Though there are disagreements and a difference in views between the two nations, there are more benefits than disadvantages in their relationship.

The Enigmatic Economics of Argentina

An oft-cited bit of wisdom in the field of international economics is a quote by Nobel laureate Simon Kuznets, who argued that there are four types of countries in the world: developed, underdeveloped, Japan, and Argentina. For decades, the case of Argentina has confounded economists, political scientists, and observers of international politics alike. A pendulum has swung from liberal democracy to military dictatorship and back, overseeing rapid transformation from late 19th-century growth to 20th-century depression and hyperinflation. Once thought to challenge Brazil for regional primacy, Argentina now more closely resembles a boomerang. When Argentines went to the polls on October 27, they voiced their displeasure with the center-right regime of Mauricio Macri and declared that the boomerang will come back again in the form of president-elect Alberto Fernandez. With mounting anti-democratic, right-wing populism on the rise in Peru and in power in Brazil and countervailing anti-corruption movements sweeping the region, establishing sound democratic and economic institutions is as crucial as ever if Argentina is to be spared from the same fate of turmoil. 

A Short History of Argentine Economics 

In the early 1900s, the future of Argentina appeared promising. Just this mere century ago, Argentina rivaled an upstart and industrializing United States, as both rode the first wave of globalization in the 20th century. Its economy, facilitated by livestock exports to Europe and the labor of immigrants from Europe, entered World War I among the ten largest in the world, and its average per capita income was vastly superior to that of Italy, Portugal, and Spain. The idea that the Argentine economy would see anything less than an absolute boom given its potential at the time would seem to have been unbelievable. 

Yet the economy is worse off today than it was in 1913. While the early 1900s were a tremendous time to be a farmer in the Americas, it would not last forever. When the United States followed the British model of industrialization, it was set up to take advantage of the new economy while its Argentine counterpart, still dependent on borrowing foreign cash to distribute beef to foreign markets, was not. As soon as 1930, meat exports to continental Europe had decreased by two-thirds from their 1924 level. 

The Great Depression further exacerbated things. Between 1929 and 1932, the country’s gross domestic product (GDP) fell by 25 percent. Yet the elite political class in Argentina, with its deep distrust of government intervention in the market, refrained from taking the dramatic social-democratic actions that were undertaken by American president Franklin Delano Roosevelt and the economy continued its decline. 

The controversial reign of Juan Perón presented a mixed bag for Argentina later. From 1945 to 1955, the Perón administration nationalized key industries, such as the Central Bank and the railways, and instituted generous social welfare policies. Inflation rose and persisted, averaging 26 percent from 1944 to 1974, but the modest GDP growth the country experienced during this time was quite well-distributed. Enforcement of minimum wage laws and the expansion of health insurance programs led to increases in real wages and the development of the largest and most unionized middle class in South America at the time. By the time the military dictatorship of 1976-1983 left office, the labor rights instituted by Perón were wiped out and the anti-democratic behaviors he engaged in were further legitimized. 

What followed over the next few decades was a period of neoliberal, market-based reforms that focused on opening Argentina to the global economy via agricultural exports and drastically reducing spending in accordance with the recommendations of the International Monetary Fund (IMF). Each time this path was undertaken, the results were disastrous, with foreign debt accumulating and increased poverty and unemployment. The worst of these crises came in 2001; after the economy contracted by 15 percent in less than two years, more than half the population fell into poverty, and the country defaulted on almost $100 billion in foreign debt. 

The election of Macri, a businessman and former president of legendary football club Boca Juniors, energized conservative hopes for economic recovery. Yet as his presidency comes to a close, it is evident that no such economic recovery manifested. Even after he instituted market-oriented reforms, anxiety among foreign investors mounted, and ultimately, foreign capital dried up. He piled on foreign debt and sought the largest bailout in the history of the IMF, some five times the size of the package approved to stave off economic collapse in Egypt. With budget cuts constricting economic growth and equality, GDP is expected to decrease by three percent while the very inflation he sought to curb has increased to over 55 percent, a higher number than any other country in Latin America besides Venezuela. Furthermore, Fitch, one of the Big Three American credit rating agencies, changed Argentina’s credit rating from B to CCC, indicating a significant increase in financial precarity. Once a safe bet for economic development, Argentina is now in full free-fall. 

Persistent Challenges: Corruption and Weak Institutions 

At the root of Argentina’s economic issues are its struggles with corruption and unstable democratic and economic institutions. Declining faith in government and institutions like the central bank and the judiciary have sustained the country’s state of crisis. Despite the common umbrella of Peronism, the members of the political movement were fiercely divided. Perón himself deemed left-wing Peronists immature and enlisted his right-wing guerrilla allies to target them. This manifested in the fascist Minister of Social Welfare Jóse López Rega forming the Triple-A alliance, a far-right death squad that carried out acts of terrorism against moderate and left-wing opponents of the regime. Furthermore, in its later days, the Perón regime began detaining people indefinitely without a trial, a drastic shift in human rights in Argentina. With dissent stifled and liberal values like human rights cascading off the Argentine political map, faith in democracy reached a low point. This would be exacerbated by the U.S.-backed military coup that installed a military dictatorship from 1976 to 1983. While approval of the military and more independent civil-military relations was previously high, the human rights abuses (torture and forced disappearances) carried out by the military during the period known as the Dirty War (or the “Época de los desaparecidos”) resulted in a decline in approval of these hallmarks of democratic states and democracy itself. But broad disapproval of liberal values alone does not explain the instability and lack of sufficient development in Argentina. Corruption continues to be a major issue impeding development. Nowhere is this more evident than in the judiciary, which is independent of both politics and outside interference in name only. Odeberecht, the Brazilian construction company in the midst of a multinational bribery scandal (including an estimated $35 million in bribes paid in Argentina, including donating millions to Macri’s campaign), has faced almost no legal recourse. When state-owned enterprises were privatized in the 1990s by President Carlos Menem, fraud and kickbacks were an open secret. Yet today, Menem is a legislator, not a prisoner. Impunity is the norm rather than something that is to be avoided. 

Declining faith in the judiciary is yet another lightning rod that amplifies the class conflict in Argentina. When powerful politicians and multinationals get away with committing fraud and bribery, it sends a message to ordinary civilians that the elites will always win, a message the Argentine people are all too familiar with. The legacy of politicians more concerned with an ideological crusade against socialism than supporting their citizens during a global economic depression looms in this regard. The chief factor holding back the independence of the judiciary and corruption reform is a poorly-designed plea bargain system. The 2016 law reforming the plea bargain system regrettably limits cooperation agreements to a small group of crimes, excluding such important and major crimes as criminal fraud. Cooperating witnesses are also rewarded only for evidence related to the case in which they are charged, though they may have evidence of unrelated crimes. These pointless restrictions make responsibly prosecuting corruption next to impossible and they must be dropped if Argentina is ever going to establish a viable liberal democracy for, by, and of the people. The central bank is another issue of institutional credibility. Turnover has plagued the institution, thereby inhibiting its consistency in monetary policy. It has had 23 different presidents in 36 years. Furthermore, even as most central banks in Latin America enshrined independence from the federal executive branch into their central banks during the regional hyperinflationary crisis, Argentina resisted the trend. Macri’s own selection for chair of the central bank blamed the current economic struggles on government interference in monetary policy. 

Argentina was once a rising economic star on par with the United States. Yet the downward trajectory of Macri’s political career is all too familiar to the Argentine people, who have spent the last half-century constricted by austerity and an insufficient social safety net while their elites escaped accountability for their misdeeds. Their frustrations were heard in the election of Fernandez and maybe, just maybe, their concerns will be reflected in the new administration’s policies. 

The Arctic Theater; Revisionism Through Exclusive Economic Zones

In August 4, 2015 a mini-submarine commanded by famed Arctic explorer Artur N. Chilingarov touched down on the ocean floor at the exact location of the North Pole. The underwater pod gathered soil from the seabed and planted a Russian flag made of titanium in the soot. It was a signal to the world of Russia’s interest in the region. While, historically, Moscow has focused on the mineral wealth stored in the arctic, it has since changed focus to oil and natural gas exploitation. With melting ice caps, longer summers, and new technologies that allow for safer passage through the treacherous waters, including a growing fleet of icebreakers, resource exploitation has become much easier in the area. However, other states have also noticed the growing potential in the North. This growing attention has  set the stage for an Arctic standoff, with multiple actors vying for access. At the literal center of this standoff is a gap formed by the Exclusive Economic Zones (EEZ) of each country. The North Pole, along with its trove of untapped natural resources, is located in this hole. According to longstanding international law, this area cannot be claimed by any state, but countries have made claims that it belongs to them. Russia has the longest coastline and the largest EEZ in the Arctic, but to what extent it’s Zone reaches is a point of contention in the international community. Russia has already made leaps and bounds in asserting its claim over the region with only the Law of the Sea to stand in its way. It is this revanchism that is making the Kremlin rather than the North Atlantic Treaty Organization (NATO) the King of the North.  

The definition of Exclusive Economic Zone is, “sovereign rights for the purpose of exploring, exploiting, conserving and managing natural resources, whether living and nonliving, of the seabed and subsoil.” Every country that has a coastline has an EEZ that extends into the ocean. The limit of the zone is the continental shelf on which the state is located. Under the 1982 United Nations convention, the Law of the Sea, a nation may claim an exclusive economic zone over the continental shelf abutting its shores. In 2007, around the same time Russia planted its flag on the North Pole, Russia claimed that its shelf “extends far north of the Eurasian landmass, out under the planet’s northern ice cap.” This claim is based off of the belief that “The Arctic has always been Russian” according the Chilingarov, who was tasked to prove this when he gathered soil deposits from the seabed. Russia submitted the proposal in spring of 2016. The United Nations (UN) has yet to announce its verdict. It should be noted, however, that should Russia be granted the area it has claimed, it would only own the seabed and the resources lodged within, not the water above. Given the potential for the Arctic to become a great source of natural resources, for not only Russia, but also Denmark and Canada, a standoff is imminent, possibly involving military means. The Kremlin has already taken the initiative in building up its military presence in the area, including re-opening ports and increasing military drills in the region.

One strategy Russia has implemented to protect and fulfill its territorial ambitions in the region is the building up its northern naval fleet while also updating the existing military presence there. In the past few years, “Russia unveiled a new Arctic command, four new Arctic brigade combat teams, 14 new operational airfields, 16 deepwater ports, and 40 icebreakers with an additional 11 in development.” This buildup is to show a proactive role in claiming the region as part of the Russian Federation. While it may not be ‘officially’ Russian territory, or part of its EEZ, a strong military presence in the Arctic would give Moscow a stronger case that the Arctic is in the Russian zone of sovereignty. Katarzyna Zysk, an associate professor at the Norwegian Defense University College, explains, “There are three basic drivers: military-strategic calculations, economic development, and domestic objectives.” These three goals can be seen in one of the founding documents of Russian Arctic policy: “Russian Federation Policy for the Arctic to 2020.” In it, Moscow outlines how it seeks to use the Arctic “as a strategic resource base of the Russian Federation providing the solution of problems of social and economic development of the country.” This excerpt alludes to Russia’s economic dependence on natural resources such as oil and natural gas that provide trade income for the Kremlin. While this action plan was written before the current economic ailments plaguing Russia broke out, this quote is nonetheless relevant. Tapping into such resources would provide more income for Moscow. 

In recent years Russia has rebuilt Soviet-era naval bases and airstrips on several Arctic islands near Alaska, while also implementing modernization efforts on existing forces. Professor Zysk notes that “As a result of the military modernization, Russia is today better prepared to participate in complex military operations than a decade ago, especially in joint operations, strategic mobility and rapid deployments.” Moscow is prepping for all three of these situations. In the event of a conflict with the U.S., Russia believes that the Arctic will become a major target due to the latter’s exposed border to NATO countries. Such an event is unlikely, however, considering that NATO’s role in the Arctic is at the moment “uncertain and unfocused,” although it should be noted that every country that has stake in region is a NATO member-state, Russia notwithstanding. Simultaneously, Canada and Norway have all conducted military and naval operations in the Arctic to stage their capabilities and demonstrate their sovereignty. The Kremlin is already showing its strength and prodding other countries’ airspace. In 2014 alone Norway “intercepted 74 Russian warplanes conducting air patrols on its coast,” a nearly 50 percent increase from the previous year. The United States, meanwhile, has been more modest in this regard as the Arctic policy has a lower tier status in US national interests. In sum, while Russia is strengthening its military presence in the Arctic, it is doing so in such a way that it does not create an armed run-in with any other NATO member-state in the region.

Next, Russia’s interest in natural resources found in the Arctic, such as oil, natural gas, and precious minerals must be explained. As explained before, resource extraction is one of the main objectives of the Kremlin’s interests in the region. “Regarding Russian territories in the Arctic, it is estimated, that 90 percent of her gas and 60 percent of her oil can be found there. Moreover, there is up to 90 percent of the hydrocarbon reserves, as well as nickel, cobalt, copper and platinum metals.” Such a high density of industrial elements and energy sources make the region a lucrative area of investment for Russian businesses. However, these percentages are just estimates. It is unclear and nearly impossible right now how much of what is embedded in the Arctic soil. Permafrost makes it excruciatingly difficult to test what lies underground and technology has not come far enough to create conditions in the ice-laden waters to sample the seabed for anything. Russia did sign a pact with U.S-based oil giant ExxonMobil for “joint ventures” in the Arctic, but these plans were scrapped in 2014 with the onset of Western sanctions. This partnership, however, is only one example of a 90-year history of resource exploration in the Arctic. Over the past few decades, “more than 400 onshore oil and gas fields have been discovered north of the Arctic Circle,” although roughly a quarter of them are not yet in production. Global oil prices and Western sanctions are hurting Russia’s economy. When it comes to low oil prices, Russia has two options: diversify its exports, so that the Kremlin’s export-related income is not as reliant on petroleum; or find and tap into more oil reserves. The latter option is more conceivable since the infrastructure is already set up to due so. Thus, the Arctic becomes that much more important to solve Russia’s energy needs and economic woes.

The Arctic has a great deal of untapped resource reserves that presently cannot be extracted due to climatic and technological difficulties, but climate change and rapidly advancing technology is changing that. What’s more, the Kremlin sees the Arctic as an emerging field in which Russia can assert its sovereignty and strength. In addition to new ships, including a small armada of icebreakers, Russia is also modernizing its existing military presence in the region. Placing a Russian flag at the North Pole seabed showed to the world that Russia was staking its claim as the King of the North.

Export Processing Zones and Industrial Linkages under the AGOA

In the last issue of The World Mind, I explored the fate of the African Growth and Opportunity Act (AGOA) under the Trump administration, the implications of its potential termination, and recommendations to policymakers to avoid the undoing of this trade deal that is not reciprocal, but still vital to U.S. interests in Africa.  I made the blanket statement that AGOA has inspired the development of “Export Processing Zones” (EPZ) that build-up infant industries. In this analysis, I will examine my own assumption—do EPZs necessarily bolster infant industries in all cases? What have industry analysts said about EPZs, and if they are not effective, why do they persist?

Export Processing Zones (EPZs)

While “Export Processing Zone” sounds technical, many Americans are familiar with the general concept. In 1934, Congress passed the “Foreign-Trade Zones Act” to manage the negative effects of the Smoot-Hawley Tariff Act within the U.S. In fact, the United States boasts 277 Foreign-Trade Zones (FTZ) and 500 special purpose subzones, as of 2012. The purpose of these zones is to encourage international business and economic development by having geographical locations across from U.S. ports of entry that allow products from abroad to be used in manufacturing without tariffs.

EPZs and FTZs are both types of “special economic zones,” or geographic areas where business and trade laws are different than the rest of the country.  EPZs are established in the same spirit of encouraging investment, but there are important differences between EPZs and FTZs. The World Bank contends that the main difference lies in the overall development objective. For Free Trade Zones, the objective is to “support trade” in a general sense. Export Processing Zones, as the name indicates, are established to encourage exports, namely in the manufacturing sector. For this reason, EPZs are most prevalent in developing countries because they “attract export-oriented foreign direct investment” meant to build up “infant industries.” The concept of infant industries stems from Alexander Hamilton in 1791 when he argued for government protection of certain potentially competitive U.S. industries from British competition. There is a wide literature on infant industries and the assumptions of the economic system within which they operate. For my purpose of examining export processing zones, I will highlight two applicable parameters of this theory.

Diversion from the Infant Industry Argument  

First, the infant industry argument operates under the assumption that the industry being protected will eventually be competitive in the long-run after its initial period of protection.  For this to be achieved, the industry must rise to a certain scale of production to compete in the global market. In the case of AGOA, exports to the U.S. are able to enter without paying tariffs, like other foreign products.  Therefore, the scale these products must achieve is less (since the marginal cost for these products can be higher) than a country without AGOA. However, since AGOA allows for tariff-free entry into the United States, in some instances already fully scaled multinational corporations (MNCs) invest in Export Processing Zones in Africa by establishing new branches so the products they export from those branches can enter the U.S. market tariff-free. While there’s nothing overtly wrong with this business strategy, it undermines the infant industry framework.

In these scenarios, wealth is being created for the local economy with new foreign direct investment, but the economic surplus that results from research and design, innovation, education, and other spillovers that should characterize booming industries under an infant industry framework, is captured outside AGOA countries. In these cases, even if the industry becomes relatively competitive in the AGOA beneficiary country, the investments being made are not for the long-term.

A 2012 study by Lorenzo Rotunno, Pierre-Louis Vezina, and Zheng Wang argues that “African success” in increasing exports from the continent is attributed to “quota-hopping Chinese firms”. They also found, as theory predicts, that African countries “imported quasi-finished products with little assembly work left to do.” This trend is especially harmful in textiles, a sector that many labor-abundant African countries could benefit from. The expiration of the Multi-Fibre Agreement in 2005, which imposed quotas on the volume of textiles permitted from developing countries to developed, further encouraged multinational firms to re-route through Africa. However redirecting trade through Africa to gain tariff-free U.S. entry can occur in any sector; regulations by African governments and international partners can incite more local investment by these companies.

The infant industry argument also suggests that governments should protect industries that inadvertently bolster other sectors beyond the one being protected. However investments are often made in industries that do not necessarily have linkages to other parts of the domestic economy. For example, by investing in the clothing sector, investments are also being made in the industries that collect raw materials, transport them to the production location, and design new technologies or strategies of increasing productivity.  However, if these linkages are located outside the country, the protection the government is undertaking through the establishment of EPZs (including tax breaks for companies, low labor standards, subsidies, and other incentives) may not result in higher levels of economic development. Howard Stein writes about the regional differences between export processing zones in Asia versus Africa, arguing, “Most zones in Africa have remained rather small, with few linkages to the local economy and small foreign-exchange earnings.” Not only are African countries missing an opportunity for growth, but the incentives aforementioned are costly to local governments. This funding could be channeled elsewhere to ensure linkages, especially if the surplus from transactions in EPZs is not being captured in the local economy.

Beyond these two possible violations of the infant industry argument’s assumptions, the nature of EPZs themselves should be considered to determine how they will affect a country’s long-term economic development and growth.

Criticisms of EPZs in AGOA Beneficiaries

EPZs have drawn many criticisms, the most prominent of which come from  labor rights and deregulation advocates. In a comparative study between EPZs in Asia and Africa, Stein found that “[m]onthly wages for an unskilled textile industry machine operator were less than one third the equivalent wage in Mauritius, half of that in China, and 60 percent of the average wage in India.” In the event of unfair wages, workers in EPZs may be less likely to organize themselves. Unemployment in many AGOA-benefitting countries is high, so workers who organize are able to easily be replaced.  In some countries, such as Togo, hiring and firing laws are different in EPZs. Some multinational companies also strategically ensure that workers are from different countries and regions, so that there is no commonly spoken language between them. This method “divide and rule,” is described in the account of Ramatex, a Malaysian company operating in Namibia.

EPZs are also criticized because of the deregulation that invites foreign investment into the AGOA benefitting country. The “race to the bottom” has become a widely-used scholarly term, as it describes the competition between lesser-developed countries for foreign direct investment conducted through deregulation. As the name would predict, sometimes the country worsens certain measures of its economic development by allowing higher levels of environmental degradation, tax breaks and credits for industries, donation of government facilities for production, and other incentives.

EPZs as a Growth Mechanism

EPZs, especially within AGOA-benefitting countries, have the potential to bolster economic development and truly build up infant industries. While my initial assertion in the last World Mind issue that EPZs build up infant industries in AGOA beneficiary countries was not necessarily wrong, it was generalized. In economic development—especially within an African framework and the diverse political economy of the continent—we should strive towards specificity, not generality, especially when making policy recommendations.

EPZs have great potential to encourage economic growth.  When companies invest in local people, EPZs can encourage growth in the education sector. Local governments can also find alternative ways to encourage long-term growth in emerging sectors, even while allowing for incentives such as lower taxes. Establishing EPZs that help develop linkages to the local economy, respect local laws, and encourage long-term investment is difficult, but the benefits of well-governed EPZs can help AGOA-benefitting countries become even more competitive in U.S. markets in the long term.

Climate Change and the Long-Run Economic Health of the Arctic

Although one may decry the environmental circumstances that allowed it to happen, the economic possibilities of the Arctic have never been more interesting. Warming temperatures and receding summer ice coverage have expanded the menu of economic opportunities that the region could previously support, and countries and companies around the world have taken note. According to a 2008 U.S. Geological Survey assessment, the Arctic holds 13 percent of the world’s undiscovered oil resources (approximately 90 billion barrels of oil) and 30 percent of the world’s undiscovered gas resources (approximately 1,669 trillion cubic feet of natural gas and 44 billion barrels of natural gas liquids). As receding sea ice and technological investments render the Arctic region increasingly accessible, this vast reserve of resources has become an attractive commercial opportunity for multinational corporations and state-run entities alike. According to estimates by Northern Economics, an Alaska-based economic consulting firm, oil and gas extraction in Alaska’s Beaufort Sea and Chukchi Sea sites alone are estimated to be capable of generating between $193 and $312 billion in state and local tax revenue through 2057, assuming oil prices remain between $65 and $120 per barrel. Even at the current $55 a barrel Brent Crude benchmark, Alaska and the regions around the two sites still stand to bring in roughly $165 billion in tax revenue from these two sites alone. Additionally, these two sites stand to bring an average of over 28,000 jobs to Alaska from now until 2057.

In addition to oil extraction, mineral- and other resource-extraction exploits promise greater economic returns with a warming Arctic. In Alaska alone, exports of mineral resources (such as gold, lead, zinc, etc.) generated $1.3 billion in 2010, and it is estimated that one mine, the Red Dog mine in northern Alaska (which accounts for 5 and 3 percent of the global zinc and lead production respectively), “has contributed $558 million to the statewide economy and $66 million to the Northwest Arctic Borough” between 1989 and 2011. Receding summer ice has also expanded the area available to fishing, and yields have grown steadily in recent years.

In the United States, much of the Arctic extraction activity has come following federal land leases to the highest-bidding commercial company. Between 2003 and 2007, the Bush Administration issued 241 leases covering over a million and a quarter acres in the Beaufort Sea, receiving $97 million in bids. In 2008 alone, 487 leases covering almost 3 million acres of the Chukchi Sea were issued for a total for $2.66 billion. In 2011, the Obama Administrationauthorized three more areas in Alaska to be available for leasing between 2012 and 2017, but these lease sales were later postponed due to environmental concerns. In addition to the initial revenue from bids, federal, state, and local taxes all allow the U.S. to extract revenue from the process.

Unsurprisingly, the United States is not alone is the race to capitalize on newly-extractable Arctic resources. In Russia, where as much as half of state revenue is derived from oil, the government offers special tax rates to encourage Arctic exploration and drilling, in addition to funding university research on special drilling methods and materials, such as supermagnets. Russia has also plantedtheir flag at the bottom of the Arctic Ocean at the North Pole, symbolically indicating their intention to maintain a presence in the region. Concurrently, Norway has recently offered a new round of oil leases in the Barents Sea, continuing an over 50 year practice of selling off drilling rights in explored areas. For its part, Finland looks to capitalize on the rush for Arctic resources through its world-leading icebreaker industry. In Greenland, optimists are even suggesting that tapping into its vast Arctic reserves might allow Greenland to become financially self-sufficient enough to formally split with Denmark and become an independent nation.

Though Greenlandic independence powered by oil extraction may be a slight oversell, for a region like the Arctic that has never seen large-scale economic activity, the ability to capitalize on existing reserves of natural capital represents an unprecedented opportunity for development. However, the abundance of natural capital in a given region can prove to be a curse if not managed proactively. A resource curse – or alternatively referred to as “Dutch Disease”, named after the role that oil wealth played in the decline of the Dutch manufacturing sector – refers to the tendency of communities to over-invest in a specific profitable sector of the economy at the expense of maintaining a diversified and stable long-run portfolio. While lucrative in the short-run, this approach tends to concentrate wealth in small communities and discourage balanced long-run growth. When the resource is non-renewable, such as oil and natural gas in the case of the Arctic, the country or region with Dutch Disease finds itself unable to compete in the long-run, as the region’s natural capital has not been properly re-invested into more sustainable economic endeavors. In a previous issue of The World Mind, Deborah Carey described this counterintuitive phenomenon in the context of Africa.

While it is difficult to definitively diagnose a given country or region with Dutch Disease, the data coming out of much of the Arctic region is symptomatic of a resource curse. In Alaska, a full 36.8 percent of the state’s 2010 foreign export earnings came from mineral resource extraction. More strikingly, petroleum extraction and other mining directly accounted for 30.6 percent of Alaska’s Gross Regional Product (GRP) in 2012, including the value added from transporting the resources across the state via pipeline. Indirectly, taxes on petroleum and mineral activity contribute the lion’s share of the state’s revenue, rendering the state budget heavily dependent on external demand for the state’s oil, gas, and minerals. For comparison, only 0.4 percent of Alaska’s 2012 GRP could be attributed to non-fish or oil extraction-related manufacturing, and only 6.2 and 1.9 percent can be attributed to health care/social work, and financial/insurance services respectively.

A similar story is also playing out in Russia, where over half (51.7 percent) of the entire Russian Arctic region’s GRP in 2012 came exclusively from the extraction of petroleum and other natural resources. In contrast, a mere 4.0, 3.0, and 0.1 percent of GRP came from the manufacturing, healthcare and social work, and financial and insurance service sectors respectively. Like Alaska, much of the economic benefit from resource extraction is realized by companies located outside of the region, and the local population realizes little economic benefit outside of what any local taxes levied may pay for. Not only do Arctic Russia and Alaska to rely heavily on natural resource extraction for generating wealth, but the wealth generated by resource extraction in these areas is not being re-invested in other, more sustainable sectors of the economy, but transferred out of the region entirely. Just as over-investment in oil production led to the neglect of other sustainable Dutch industries in the 1960s, it appears as though Alaska and Russia – who together make up over 60% of the land area of the region – appear to be forgoing a sustainable growth plan in exchange for the promise of short-term riches.

However, while diagnosing Dutch Disease is difficult on its own, it is equally difficult to propose a workable cure for a region so rich in natural resources and capital-starved in just about every other sector. Nevertheless, some Arctic countries seem to be developing more balanced portfolios. Sweden’s Arctic region, for instance, relies on petroleum and mineral extraction for only 10.9 percent of its 2012 GRP, compared to 11.7 and 11.8 percent on manufacturing and healthcare and social work respectively. Others, such as Canada, have ensured that local regions receive transfers from southern regions in exchange for petroleum and mineral extraction.

Yet, in order to construct a compelling long-term growth plan for the Arctic that does not rely exclusively on non-renewable resource extraction, one must identify other comparative advantages that the region may exploit in lieu of resource extraction. Surprisingly, some argue that electronics manufacturing and data storage have a natural long-term home in the Arctic, simply due to the Arctic’s year-long cold temperatures. The idea is that the natural, year-round cold of the Arctic substantially reduces the cost of keeping electronics from overheating, thereby reducing a major cost involved in large-scale data storage. With the global data center construction market expected to increase from $14.6 to $22.7 billion and the global fiber optics market expecting to grow 9.5% by 2020, the gains are there for Arctic countries who are able to exploit their unique climatic advantage. Tech giants like Facebook and Google both seem to be convinced of the advantages of Arctic cold, as the former recently opened a data center in Luleå, Sweden, to service its European traffic, and the latter has begun the process of repurposing an old paper mill in Hamina, Finland, to serve as a data storage center.

Not to be outdone, the Finnish government has already taken significant steps toward developing an electronics manufacturing operation in Oulu, a university city in northern Finland. Feeding off of the pre-iPhone success of Nokia (a Finnish company), Oulu has become a regional hub for the electronics industry. Though the city and region endured a painfully long period ofcontraction after the 2008 crisis and Nokia’s significant loss of marketshare, it has appeared to have bounced back. According to local economic development officials, over 500 tech startups have opened shop in the area since 2014, helping to support about 17,000 high-tech jobs, including around 7,500 in research and development. Additionally, Nokia and the University of Oulu recently announced their intent to collaborate on a new project to develop a 5G test network, which will include a 5G hackathon in June, promising to attract top tech talent to the Arctic town.

More ambitiously, the algorithmic stock trading industry may also be moving North in the near future. Quintillion, an Irish fund administration company, is currently heading phase 1 of a project to build an underwater fiber optic cable network that connects London with Tokyo through Canada’s Northwest Passage. Currently, it takes about 230 milliseconds for data to travel through the network of cables connecting London to Tokyo through the Suez Canal. However, Quintillion claims that its cable will cut this time by just over 26% to around 170 milliseconds, simply by virtue of the shorter distance that the data must travel between points A and B. While this speed boost may offer little more than a nice convenience for most users, to algorithmic stock traders this slight speed advantage is everything. Given that traders in this industry have historically fought to be physically closer to financial centers, it is not inconceivable that the existence of a faster cable in the Arctic may entice this industry to move North, giving Arctic regions a realistic chance to woo traders (and their tax dollars) to their cities. In addition to Quintillion’s Northwest Passage cable, the Finnish government and the Russian company Polarnet have discussed plans to build a submarine cable from Europe to Tokyo via an eastwardly route around Northern Russia, though the plan looks to be impossible without financial backing from the Russian government. Regardless of the ultimate profitability of submarine cable projects like these from the perspective of algorithmic stock traders or city governments, the provision of fast, high quality internet needed in order to facilitate meaningful economic and human development is a boon for the Arctic region that is already being realized.

Of course, transitioning from an economy driven by resource extraction to a digital economy hosting premier electronics manufacturing, data storage, and high-speed trading operations is not straightforward or guaranteed. Perhaps the Arctic climate will keep companies from being able to attract top tech talent, or the data storage or electronics manufacturing markets do not grow as quickly as anticipated. However, if Arctic governments are serious about pursuing healthy long-run growth, they must find a way to keep from over-investing in natural resource extraction, no matter how tempting the short-run gains from doing so may be.

Overestimating Refugees’ Economic Impact: An Analysis of the Prevailing Economic Literature on Forced Migration

The UNHCR reported in June 2016 that the number of number of refugees, asylum seekers, and internally displaced persons reached a record high of 65 million individuals worldwide. How will all these individuals impact the economies of the countries in which they find asylum? Do refugees, as some politicians claim, force domestic workers out of the labor market? Do refugees exert a substantially negatively net fiscal impact? This paper attempts to address these questions by analyzing the prevailing economic literature from 1990 until the present on refugees’ and immigration’s economic impact. I argue that, although the estimated economic effects of immigration and refugees vary, their overall impact is negligible. Refugees exert a slightly negative impact on domestic wages if domestic labor is immobile. At the same time, refugees’ net fiscal impact depends more on their tax contribution—which is a function of their labor market integration—than their consumption of publicly funded goods and services.

Overview

Refugee and forced migration issues have dominated recent political debates in Europe and other parts of the world. Those on the political Right claim that refugees threaten European national security, economic prosperity, and cultural traditions; those on the political Left claim that the influx of refugees represents a humanitarian crisis that demands accepting additional refugees. Perhaps the Economist’s attempt to reconcile these two opposing opinions puts it best: “Humanity dictates that the rich world admit refugees, irrespective of the economic impact. But the economics of the influx still matters.” Setting aside that international law does require states to provide refugees with asylum, this paper attempts to address the two most salient economic questions regarding refugees’ arrival in Europe.

First, do refugees displace domestic workers, leading to higher rates of unemployment and lower wages? Second, do refugees exert significant strains on public finances? While perfect data do not exist to answer either of these questions beyond the shadow of a doubt, evidence suggests that, in the short run, granting refugees asylum leads to a negligible overall effect on the labor market and public finance. In the long run, however, refugees positively contribute to the labor market and public finances, the extent of which depends mostly on the success of their integration into the economy.

Refugees and the Labor Market

Economists disagree about the precise nature and extent of immigration’s impact on the wages and unemployment rates in immigrant-receiving countries. On the one hand, some studies suggest that immigration has “essentially no effect on the wages or employment outcomes” of domestic workers. David Card’s famous analysis of the Mariel Boatlift found that refugee immigration had a positive, yet minimal impact on the Miami economy due to the city’s ability to absorb refugees into previously unexploited sectors. On the other hand, George Borjas argues that, because of labor mobility, the impact of immigration on unemployment and wages may be tenuous in regional labor markets, while simultaneously depressing labor market conditions at a national level. Borjas measured skilled and unskilled immigrant labor in terms of educational qualifications and found that a 10 percent increase in the labor force due to immigration resulted in a three to four point decrease in domestic workers’ wages.

However, other studies attempt to find some sort of middle ground, disputing both the argument that immigration has no effect on the labor market and the argument that immigration drastically depresses wages and employment. Gianmarco Ottaviano and Giovanni Peri, for instance, adopt the qualification bands from Borjas’ framework, but they assume that, even within those bands, immigrant and domestic workers are not perfect substitutes. In other words, immigrants with the exact same educational qualifications as domestic workers can function as “imperfect substitutes” because of labor market discrimination. Even if immigrants could do the same job as domestic workers, they don’t practically function as perfect substitutes because, in reality, they may not be hired by employers who consider them less capable because of their race, ethnicity, nationality, language, etc. As a result, Ottaviano and Peri find that immigration has “a small effect on the wages of native workers with no high school degree (between 0.6% and +1.7%) […and] a small positive effect on average native wages (+0.6%).” Moreover, Ottaviano and Peri also note that, given the standard error, this effect is not “significantly different from 0.” The largest impact on the labor market observed was on the wages of previous immigrants, which were found to have “a substantially negative effect (−6.7%).” Thus, even at the theoretical level, the effect of immigration on the labor market has been highly contested.

Later, even more tweaks were made to the traditional methodology used to study the economic effects of migration. Stephen Nickell of the University of Oxford and Jumana Saleheen of the Bank of England recently studiedmigration’s impact on average British wages in any given region of the country between 1992 and 2014. Crucially, Nickell and Saleheen measure skill distribution by occupation, a clever methodological tweak considering “that it is often very tricky to accurately compare education qualifications across countries.” In addition, treating skill distribution as a function of occupationhelps to translate the economics of migration directly into the jargon of public discourse, which treats immigrants principally by occupation rather than by educational attainment, such as with the “stereotype of the Polish plumber—used widely as a symbol of cheap labor.” Ultimately, Nickell and Saleheen findthat migration exerts “a statistically significant, small, negative impact on the average occupational wage rates of the regions” studied. The largest effect on wages observed related to semi-skilled and unskilled labor, where a 10% increase in migrant labor resulted in a 2% decline in the average wage. Nickell and Saleheen’s occupational measure of qualification might be said to be more accurate than educational measures such as Borjas’ considering that, oftentimes, educational credentials do not transfer between countries. Therefore, Nickell and Saleheen’s findings suggest that refugees immigrating to Europe may adversely affect the labor market, but not nearly to the extent that some politicians claim.

Moreover—and with specific regard to refugees—the Economist notes that the wage-dampening may “even have positive side-effects” for the domestic labor market. A recent paper by Mette Foged and Giovanni Peri finds that, in Denmark between 1991 and 2008, domestic workers pushed out of low-skilled industries by refugees changed jobs to other, “less manual and more cognitive” labor-intensive sectors. Such jobs included “legislators and senior [government] officials,” “corporate managers,” and even “skilled agricultural and fishery” sectors. By contrast, the proportion of refugees composing manual skilled sectors such as “machine operators,” “drivers,” and “mining laborers” rose substantially, resulting in “positive or null wage effects and positive or null employment effects” for domestic populations over the long run. So, to the extent that refugees substitute for domestic labor—however imperfect that substitution may be—their overall economic impact also depends on the abilities of displaced domestic workers to find employment in other sectors. Additionally, evidence exists from Congolese refugee camps in Rwanda to suggest that one additional refugee receiving cash aid contributes an estimated $205 to $253 to the local economy. Taking the difference between contributions and per-refugee cash aid, refugees yielded a positive individual contribution of between $70 $126 annually. Most of the refugees’ individual contributions resulted from spillovers with the local economy, such as the “purchase [of] goods and services from host-country businesses outside the camps.” If refugees displace workers who move into other sectors of the economy and experience higher wages, then they also positively contribute to the sales of local businesses.

Refugees and Public Finances

Refugees exert a similarly ambiguous impact on public finance as they do on the labor market. In fact, a 2013 OECD report notes that including or excluding non-personal sources of tax revenue, such as corporate income taxes, as well as non-excludable goods like roads, in an analysis of immigrants’ net public fiscal impact “often changes the sign of the impact” itself. Estimates of immigrants’ net fiscal impact thus vary depending on the methodology employed, although the report’s main findings suggest that—however measured—the impact “rarely exceeds [plus or minus] 0.5% of GDP in a given year.” In fact, the OECD observed the highest impact on public finance in Luxembourg and Switzerland, where immigrants positively contributed an estimated 2% of GDP to the public purse. Compared to domestic populations, however, the OECD report found that, on average, immigrants have a lower net fiscal contribution overall.

This is an especially salient concern in the short run, because refugees can potentially exacerbate strains on the public purse, contributing to increases in demand for public services while the supply of those resources remains temporarily fixed. In fact, precisely because of the protections afforded to asylum seekers under international law, “additional public spending for […] housing, food, health, and education, will increase aggregate demand,” therefore making such services more costly to provide, all else equal. However, in many cases, the short-term costs of accommodating asylum seekers are borne by international donors rather than governments. In fact, University of Oxford Professor Emeritus Roger Zetter notes that global programs to accommodate refugees in the short term total 8.4 billion USD globally, but that economists “rarely analyze the economic outcomes of their program[s].” Instead, they “tend to assess the impacts and costs for the host community” as a percentage of GDP regardless of whether or not the government actually pays for the accommodations provided to refugees. Such analyses are frankly misleading because, while aggregate demand for publicly funded goods may increase in the short run, the cost of meeting such a higher demand puts strain on NGOs, the UNHCR, and other international donors, not on governments.

Among the three countries with the highest numbers of Syrian refugees—Turkey, Lebanon, and Jordan—GDP is expected to rise, while estimates of the costs of accommodating refugees are paltry. The OECD predicts that Turkey’s GDP growth will “remain close to 4% per annum in 2016 and 2017.” Meanwhile, the 5.37 billion euros that Turkey spent between 2012 and 2015 on “the perfect refugee camp[s]” amount to less than 0.2% of GDP per year. Turkey, importantly, is one of the only countries paying the entire costs of short term asylum accommodations out of pocket, “except for some relatively minor international donations” Similar trends have been observed in Lebanon and Jordan, where GDP growth far outpaces the short term costs of accommodating refugees largely due to the fact that—in contrast to Turkey—refugee camps and resettlement programs are funded principally by NGOs and the UNHCR.

Yet even following the short term costs of accommodating refugees, their net fiscal impact over time depends more on the success of their integration into the labor market than their raw consumption of publicly provided goods and services. Joakim Ruist from the University of Gothenburg, for instance, suggeststhat the net fiscal contribution of refugees in Sweden steadily increases from approximately 10,000 kronor (approximately 1,100 USD) during the first year of residence to over 30,000 kronor (approximately 3,300 USD) during their seventh year. In a similar vein, the IMF observed that, depending on the speed of labor market integration, “the level of GDP could be about 0.25 percent higher for the EU as a whole and between 0.5 and 1.1 percent higher in the three main destination countries (Austria, Germany, Sweden)” by 2020.

Importantly, Ruist found that four-fifths of refugees’ net fiscal impact has been estimated to result from their smaller contributions to tax revenue, while only one-fifth was due to “higher per-capita public costs.” In other words, the net fiscal impact of refugees has more to do with their limited contribution to government revenue than their increased demand for public services, suggesting that refugees are more than capable of paying for the public services they consume if successfully and fully integrated into the labor market. This further justifies the need to focus on integrating refugees into the labor market of their destination country, as opposed to simply denying asylum claims based on perceptions that refugees will “steal” domestic jobs.

Furthermore, attempting to estimate refugees’ net fiscal impact based on previous models of migration like Borjas’ wrongly assumes that refugees have a reasonably similar economic profile as other immigrants. In reality, the net fiscal impact of any immigrant varies depending on both the economic profile of the immigrant and the economic conditions of the receiving countries. For example, immigration to Europe between 2007 and 2009 heavily strained public finances because “lots of [immigrants] were pensioners, who tend to drain the public finances,” according to the Economist. By contrast, most refugees fleeing Syria, who “constitute[d] the biggest national group migrating to Europe in 2015,” are both younger and more skilled than those fleeing the last “refugee crisis” in Europe—that of the former Yugoslavia in the 1990s. The median age of Syrian refugees in 2014 was 23 years-old, and compared to the former Yugoslavia, the ratio of “youth cohorts” to “near-retirement-cohorts” has declined from 1.3 to 0.7 since 1990. Moreover, the International Labor Organization reported in 2014 that an average of 56% of Syrian refugees residing in Lebanese camps worked either in skilled or semi-skilled sectors. Therefore, the impact of refugees on the economy overall, and specifically on a country’s public finances, depends on the economic profile of the refugees with particular regard for working-age and job skills.

Conclusion

According to the Pew Research Center, a record 1.3 million people applied for asylum in Europe in 2015, nearly double the previous record of 700,000 set in 1992, and the number of forced migrants across the globe continues to rise. Therefore, understanding refugees’ impact on European economies will become hugely important as more and more are granted asylum and resettled in their new homes. While previous studies of immigration’s impact on the labor market and public finances is somewhat ambiguous, the prevailing economic literature suggests that, in the short run, refugees will have a slightly negative impact on average wages and employment rates in substitutable sectors, and a slightly negative impact on public finances. However, in the long run, if prevailing economic scholarship holds true, wages will stabilize while those forced out of employment by refugees will find work in other sectors, and refugees will yield a net positive fiscal contribution. Finally, considering the fact that refugees hardly function as perfect substitutes for domestic labor, their integration into the labor market would bolster the overall net fiscal expenditure of immigrant-receiving countries.

Beyond Supply and Demand: Using Economic Principles to Explain Terrorism

Introduction

Following the September 11, 2001 attacks, a dramatic rise in the study of terrorism occurred in academia. Although recent actions by U.S. military and Treasury officials seek to deplete ISIS’ economic resources, little literature exists regarding the role of economics on the development and behavior of terrorist groups. This paper examines the economic motives of terrorist groups and proposes possible solutions to deter and prevent future terrorist attacks. The first section focuses on the economic causes of terrorism utilizing economic principles such as rational choice theory and self-interest. The second section uses market structure and club theory to examine the dynamics of terrorist group behavior. The third section of the essay explores the use of deterrents including welfare spending, offensive strikes, and restricting economic resources as means of both hindering terrorist organization growth and thwarting terrorist attacks.

Rational Choice Theory, Self-Interest, and Suicide Bombers

To better understand terrorists, this paper classifies them as rational actors who aim to maximize utility. Terrorism is a rational choice because the perpetrators weigh their decisions based on marginal benefit versus marginal cost. Terrorism, as described throughout the essay, is defined as “the premeditated use, or threat of use, of extranormal violence to obtain a political objective through intimidation or fear directed at a large audience.” Terrorists consider the possibility of a successful attack against the possible risk of an agent such as the government preventing the attack and detaining terrorist members. Terrorists also seek to maximize utility by inflicting the greatest possible damage at the lowest possible cost.

Academics may also describe terrorists as self-interested or present-aim actors to further explain their economic motives. The former is defined as considering one’s choice based on tradeoffs regarding cost, benefits, and resources, whereas the latter occurs when an actor successfully pursues their objective at the time of the attack. Present-aim terrorists do not consider possible tradeoffs and base their actions off the most efficient means of destruction possible. Present-aim terrorists claim non-monetary motives behind their actions and would substitute a reduction in income in exchange for more successful terrorist attacks. However, Juliet Elu’s article examining terrorism in Africa and South Asia disproves this idea. Based on the study’s comparison of nations’ GDP per capita and their rate of terrorist attacks from 1980-2004, a positive correlation exists between per-capita-income and terrorist attack rates. This relationship demonstrates that terrorists do not attack low per-capita-income nations due to the decreased economic opportunity, thus exemplifying the idea that terrorists act as self-interested actors.

Figures 1 + 2: Graphs illustrating the relationship between Africa and South Asian nations’ GDP per capita and their number of terrorist incidents from 1980-2004.

Although conventional wisdom may regard suicide bombers as irrational due to their inherently self-destructive actions, economic theory demonstrates their function as self-interested, rational actors who seek to maximize utility based on tradeoffs regarding benefits and costs. A positive correlation exists between suicide bombers and high amounts of human capital; the latter of which economists define as an individual’s skills or knowledge. This relationship is likely due to the increased marginal benefit a highly-intelligent terrorist provides to a terror organization. Despite the destruction of human capital due to the suicide bomber’s inevitable death, the action reaps a large amount of utility for the terrorist organization.

Suicide bombers are also more likely to attack an area with a large population density. Despite the initial explanation of choosing to target high-population dense areas due to increased damages, this decision remains rooted in economic theory. Utilizing this method of destruction provides a low-cost, high benefit means of destruction. The suicide bomber will likely inflict mass casualties due to the high-probability of success. Eli Berman, author of Radical, Religious, and Violent: The New Economics of Terrorism, observes that the operation poses little cost in the form of risk due to the impossibility of the government detaining the perpetrator following their actions. Also, terrorist groups often delegate the role of suicide bomber to those least likely to defect. These members often possess large amounts of human capital and are highly likely to carry out the mission.

Market Structure, Economic Development, and Club Theory

A nation’s market structure may serve as a key factor in a country’s rise of terrorism. Terrorist attacks may occur due to the transition to a more advanced economy. Charles Boehmer and Mark Daube’s research posits a link between the rise of terrorism and the conversion from a clientele economy to a market-based economy. The former consists of an economic structure based on hierarchical values and the accumulation of influence, whereas the latter is based on contract law and perceived egalitarianism among all economic actors. This economic overhaul likely contributes to the rise of terrorism due to a perceived overthrow of social order. The economy no longer remains focused on hierarchy and all economic agents are equal. This situation may lead to social unrest, contributing to the rise of terrorism as a means of reestablishing previous socioeconomic values.

Despite the study’s evidence of a correlation between economic transition and the rise of terrorism, conflicting literature exists regarding the occurrence of terrorism in high and middle-income nations. Although the paper previously pointed out that Elu’s research developed a correlation between a country’s per capita GDP and its number of terrorist attacks from 1980-2004, a different data set yields disparate results. By analyzing data of 144 nations’ rates of terrorist incidents and GDP per capita from 1970-2000, Boehmer and Daube conclude that middle-income states are most vulnerable to terrorist attacks. Their study explains this result by noting that many middle-income nations recently underwent the transition from a clientele to a market-based economy, providing the potential for social unrest and the possible subsequent rise of terrorism. Also, Boehmer and Daube believe that terrorist attacks occur less frequently in high-income nations due to those states’ ability to create government programs to lessen social strife and reduce the incentives of forming a terrorist group. Although their analysis arrives at different conclusions than Elu’s work, neither study disproves the other due to the differences in their respective data sets.

Figure 3: Graph illustrating the correlation between 144 nations’ GDP per capita and their number of terrorist attacks from 1970-2004.

In addition to a nation’s market structure and level of economic development, club theory helps explain terrorists’ behavior. In the context of this paper, club theory denotes a group, particularly a radical religious organization, that provides goods through acts of charity. Terrorist organizations epitomize this idea by their offering of mutual aid in which individual members of groups such as Hamas and the Palestinian Islamic Jihad provide services to the families of organization members based on financial and political support. Groups that follow this model must avoid the free-rider problem, in which terrorists may not contribute to the group and receive services for free. However, this problem seldom occurs due to the demands terrorist organizations place on new recruits. Before receiving charitable services, potential members must sacrifice their time and assist others in the community. By providing a test of loyalty in the form of initial sacrifice, terrorist organizations address this economic issue and ensure that all members will contribute to the group at some point in their membership.  

Welfare Spending, Offensive Strikes, and Resource Deprivation as Incentives

Although the paper has focused on the economics behind terrorism, the subject can also be utilized to prevent both the rise of terrorism and future terrorist attacks. Many academics and policymakers propose welfare spending as a means of deterring terrorism. However, literature on the subject yields conflicting results, and the spending must be properly implemented and administered to achieve the desired outcome. The success of increasing spending on government programs to reduce terrorism is best demonstrated by the actions of Northern Ireland. Following the signing of the Good Friday Agreement in 1998, the UK and the EU provided grants to Northern Ireland in the form of peace money designed to fund public projects that aimed to reduce social inequalities between Catholics and Protestants.

Within five years, disparities between the two groups in terms of healthcare, education, and housing had been eliminated, which also correlated with a reduction in terrorist attacks. UK and Northern Ireland leaders credit local administration and oversight to the program’s success, which permitted the peace money to be directed to projects designed to reduce conflict between Catholics and Protestants while also helping to economically improve Northern Ireland’s cities.

However, welfare spending does not guarantee decreased terrorist activity. Schnellenbach notes that transferring wealth to communities that support terrorist organizations will likely result in increased financial contributions to the group. Ensuring proper fund implementation may prevent this problem. Money invested in public works projects designed to improve societal aspects such as public health and education will likely lower terrorist support. This concept remains true due to the use of incentives. Although providing funds to terrorist sympathizing areas may appear to reward terrorists, doing so may result in decreased support for the terrorist organization if local government oversees the money’s proper implementation. Local residents will be less likely to join a terror cell if economic conditions improve, as there would be little economic benefit to joining the terrorist organization.

Like the conflicting literature regarding welfare spending, academics also debate the efficacy of offensive strikes versus restricting economic resources as means of hindering terrorist attacks. Proponents of the former believe that government raids and preemptive strikes disrupt terrorist organizations and deter terrorists from committing attacks. However, countries seldom implement this strategy due to both the free-rider problem and information asymmetry. Offensive action often requires multinational cooperation and remains more difficult to implement than defensive strategies such as building a wall. The free-rider problem may occur due to one nation not participating in the anti-terrorist coalition yet benefitting from the efficacy of the offensive strike. Similarly, terrorists often know more about government actions than vice-versa, adding to the difficulty of offensive action due to the risk of the targeted group acquiring knowledge of the plan.

Peace economist researchers often recommend restricting resources to terrorist groups as a means of hindering attacks. Despite the conventional defensive strategy of protecting a nation’s assets, Intriligator suggests governments focus on raising the costs of terrorism by cutting off resources to terrorist organizations. This tactic increases the difficulty of terrorist organizations to acquire valuable assets such as money, weapons, and intelligence. This increased cost of terrorism may deter potential recruits from joining terrorist groups. Also, protecting a nation’s assets by increasing security in areas such as government buildings and major transportation hubs remains ineffective at thwarting terrorist attacks due to the concept of substitution. Rather than increase the amount of resources to commit an attack at a place of high-security such as an airport, terrorist groups will devote their efforts to attacking other areas of high-population density, such as train stations and city centers.

Conclusion

This paper examines the role of economics in terrorism through both terrorist actions and possible deterrents. Despite media coverage surrounding ISIS’ predominantly oil-based economy, utilizing economic ideas to model terrorist behavior remains important. Rational choice and self-interest help explain the behavior of individual terrorist, as demonstrated by the economics behind suicide bombers. Market structure and club theory act as means of explaining the actions of terrorist organizations. Also, the use of deterrents such as welfare spending, offensive strikes, and restricting resources function as possible solutions to prevent both terrorist attacks and the growth of terrorist groups. Further study is needed on the behavior of terrorist organizations outside of the Middle East. However, better understanding of the economics of terrorism may assist the United States in defeating the Islamic State by financially suffocating the group’s struggling economy in addition to coordinated military attacks.

Demonetization in India and the Misuse of Shock Economics

Last November, this column discussed the potential effects of the demonetization of Indian banknotes. However, the article was written while the shock of the initial announcement was still fresh and could only report what was known at the time, providing background information regarding the scale of Indian black money and offering quick glances at things to look out for in the near future. Now that the old 500 and 1, 000 rupee (₹)banknotes have officially ceased to be considered legal tender as of December 30th, an update to the initial story seems necessary.

Modi’s “Surgical Strike” on India’s Black Money Problem

Originally, the suddenness of demonetization was justified on the grounds that it would deny those hoarding black money (money acquired through illegal or semi-legal means) a chance to launder their dirty cash ahead of time. Deemed a “surgical strike” by its proponents, demonetization was billed as a way of leveraging the Indian economy’s heavy reliance on cash (98% of all transactions involve cash, and 86% of all bills in circulation were the demonetized ₹500 and ₹1,000) to either catch criminals and hoarders of black money or force them to forfeit their stashes. As reported last fall, the thinking went that while large stashes of newly demonetized cash earned via legitimate commerce could be explained with receipts and income statements, demonetized cash earned via illegitimate commerce would come with no valid receipt or income statement and would not be eligible to be exchanged for the new bills. In theory, those holding no black money would lose nothing, while those with black money would be forced to choose between admitting criminal activity and outright losing a substantial amount of money.

Unfortunately, this storyline has not played out in practice. As the December 30th deadline for exchanging old bills for new ones passed, Bloomberg reportedthat ₹14.97 trillion of the ₹15.4 trillion that was demonetized (over 97%) had been validated and exchanged for new bills. Such a high rate of validation suggests that either India’s shadow economy is far smaller than initially estimated, or that hoarders of black money were able to successfully launder their dark fortunes in a short amount of time, despite the promises of a “surgical strike.” Given that estimates of the size of India’s shadow economy are consistently reported in the billions – and was estimated at around ₹25 trillion as recently as June 2016 – it seems farfetched to assume that less than 3% of the most popular bills in an overwhelmingly cash-driven economy can be attributed to black money. Rather, such a high rate of validation more likely indicates that holders of black money were able to launder their money some way or another.

While it is unclear at this point exactly how this was done on such a complete scale, there have been reports of bankers knowingly exchanging counterfeit or unaccounted-for bills in return for payment. Interestingly, while gold prices jumped over ₹1,000 per 10g the day after demonetization was announced after staying relatively steady the week before, they immediately returned roughly to pre-demonetization levels a day later and actually steadily fell through November and December. This sharp increase in demand, followed by a quick correction and steady fall, suggests that while black money hoarders may have immediately turned to gold in order to launder their dark fortunes, this common laundering technique was not a major contributor to the unexpectedly high validation rate of old bills. Regardless of the precise technique of the laundering, the fact that over 97% of illegal bills were validated indicates that black money hoarders were able to successfully side-step Mr. Modi’s “surgical strike” against them.

Sadly, not everyone emerged unscathed from the “surgical strike.” As reported last fall, Indian housewives who had spent generations collecting personal fortunes secret from their husbands were now forced to make a choice between losing those fortunes altogether, or admitting to their families that they had been siphoning money from their husbands. Given that many women in India hold second-class economic citizenship and are kept from handling money and making purchases, these secret stashes of wealth represent a rare form of financial and personal freedom for Indian women. Now, for many, that freedom has likely vanished, perhaps along with the trust of their husbands.

More saliently, dozens of people have died as a result of demonetization, primarily due to exposure from standing in bank queues for hours and from hospitals refusing to accept old bills. Mamata Banajaree, a member of the opposition to Mr. Modi, claimed that 112 people in total had died due to demonetization between the time it was announced and the December 30th deadline. Though it is unclear as to how Mr. Banajaree came to exact number, it should be noted there were at least total 55 deaths reported merely 10 days after demonetization was announced. Because withdrawals of the new bills were limited to ₹2,000 a day during the 50 day exchange window, and banks often ran out of new bills before queues were exhausted, people looking to exchange demonetized bills often had to stand outside for hours day after day in order to exchange all of their bills. While limiting the withdrawal amount meant to prohibit black money hoarders from exchanging their entire fortunes at once, it also kept old or sick Indians trapped outside day after day, likely contributing to such a seemingly high death toll.

A Move to the Digital Economy

However, while demonetization may have come up short in its public goal of surgically striking hoarders of black money, evidence exists to suggest that it may still yield positive results in the story of India’s long-term growth. By November 30th, less than a month after demonetization was announced, 30 million new bank accounts had been opened nationwide, and it has been reported that many of the previously “dormant” bank accounts (accounts without any transactions for 24 months or more) have awoken as well. Furthermore, as money moves from cash to digital form, previously reliable practitioners of the cash-only business model, such as laundry washers, rickshaw drivers, and street vendors, have started offering digital payment options. Paytm, an electronic payment service, reported over 14 million new accounts in November, and Oxigen Wallet, a rival e-payment service, has reported a 167% increase in daily users since November 8th. Though only small steps on a long road, this is good evidence that India’s journey toward a digital economy has been nudged forward by the shock of demonetization.

The obvious benefit of a digitized economy is that it makes economic activity much easier to regulate and tax, due to greater ease of electronically tracing transactions as opposed to them being conducted under the table with largely untraceable cash. On December 29th, just before the 50 day window for exchanging notes expired, India’s Finance Minister, Arun Jaitley, declareddemonetization a success for tax collection purposes. According to Jaitley, direct tax collection (collections of taxes directly billed by the government, such as income taxes) increased 14.4% through December 19th, and indirect tax collection (collections of taxes that are paid to the government through a third party, such as sales taxes) increased by 26.6% through the end of November. Moreover, government reports from 47 cities in India have reported a combined 268% increase in tax revenue for November 2016 as compared to the previous November. For a developing economy, such a dramatic increase in tax collection efficiency is especially important , and demonetization should be given credit for nudging the Indian economy down the path toward digitization, even if it did so as an afterthought to punishing black money hoarders.

Of course, while the digitization of India’s economy is increasing at record levels, it still remains an overwhelmingly cash-driven economy at the moment. This is especially true in rural areas, where access to banking services often involves walking miles to the nearest ATM, rendering economic digitization inconvenient at best. Moreover, stores and shops in rural areas tend not to be equipped to accept digital payment, fostering little to no immediate need to open a bank account. Similarly, truckers and transportation services rely heavily on cash and walked off the job when they ran out of legal tender in the early days of demonetization, oftentimes abandoning their cargo on the side of the road. Getting transportation and cargo-moving providers to go digital in the near future seems difficult, as it would require them to have access to e-payment options wherever they go, which would involve all or most of the entire country getting on board with digitization.

Lessons for the Future

While the dust is still settling and new information about the effectiveness of demonetization is coming in every day, a clear question has emerged: why make the move a surprise? Of course, Mr. Modi made it known at the outset that demonetization was meant to catch hoarders of black money off guard and therefore needed it to be a surprise in order to deny hoarders a chance to plan ahead. However, that over 97% of the demonetized currency was validated suggests that hoarders of black money were able to adjust on the fly despite a lack of warning. Instead, those who were unable to adjust tended to be the poor, who could not afford to queue at a bank for hours, truckers and transportation services who also couldn’t afford to queue at a bank for hours and who rely on being able to use cash anywhere to refuel and conduct business, and those in rural areas without easy access to banking services or e-payment infrastructure. Making demonetization a surprise hurt these types of people the most by inconveniencing them after denying them the opportunity to plan ahead. As has been shown before, and as Mr. Modi should have been expected to consider beforehand, it is often the most disadvantaged that are most severely impacted by the economics of shock.

Additionally, there is little evidence to suggest that demonetization needed to be a surprise in order to have the effect it has had on economic digitization. In convincing Indians to go digital, Mr. Modi only needed to give them a reason to get to the bank and not trust cash so blindly, and there is no reason why this couldn’t have been accomplished via a lengthy rollout of demonetization, wherein the public would be warned months or even a year before 86% of the bills in circulation were to be invalidated. This would allow Indians of all types of backgrounds to plan ahead, but would still force them to go to a bank and exchange or deposit their old bills eventually, thereby achieving the major win of demonetization without throwing much of the nation’s economy in temporary turmoil. For future governments looking to fight black money or digitize their economies, the lesson they may learn from India’s experience with demonetization should simply be to take their time.

Of course, politics do matter in economic decisions, and demonetization was arguably just as much a political move as it was an economic one. For Mr. Modi and his ruling Bharatiya Janata Party (BJP), a grand “surgical strike” against corruption plays better politically than does a slow, methodical nudging of the Indian economy toward digitization. As it happened, Mr. Modi and the BJP were better able to frame demonetization as a grand, patriotic sacrifice for a better India. One might imagine an opposing scenario wherein Mr. Modi rolled out slow banking reforms aimed at digitizing India’s economy, having to drag Indians through months of inconvenience and spend months drumming up support for such a dull measure.

With five states in which the BJP is active holding elections in the coming weeks, it shall be seen how effective Mr. Modi and the BJP can be at continuing to frame their move as one of heroic patriotism. Home to over a fifth of India’s population and comprising a multitude of castes and demographic groups, elections in these five states have been regarded as a referendum on demonetization. Early polling suggests that the BJP is poised to put forth a strong showing in Uttarakhand, and win the large state of Uttar Pradesh, indicating at least an acceptance of the necessity of demonetization.

However, with the polls in the large state of Uttar Pradesh staying open through March 8th and the state of Manipur not voting until March 4th, the BJP’s political opposition still has some time to turn the tide. To do so, they will almost certainly need to brand demonetization as an unnecessarily quick, ill-prepared economic move made with political gain in mind. Luckily for the BJP’s opposition, the economic justification for this narrative is there.

The EU Single Market and the Economics of Brexit

The future of the United Kingdom’s relationship with the European Union is unknown, though there has been much speculation on what the details of Brexit will entail. In regards to the Single Market, which guarantees free movement of people, goods, services, and capital among member states, some experts have called for a special deal to be made with the EU to uphold as many of these provisions as possible. While a unique agreement with the EU will help the UK maintain economic stability, it must also be met with many domestic and transnational policy reforms, as well as new trade negotiations. In light of the UK’s decision to leave the EU, it must be willing to forfeit all benefits and privileges currently enjoyed by EU agreements, including the Single Market. As such, the UK must develop a new plan to ensure continued economic growth and secure trading partners.

Prime Minister Theresa May has been clear on her position, stating in a speech, “It is not going to be a ‘Norway model.’ It’s not going to be a ‘Switzerland model’. It is going to be an agreement between an independent, sovereign United Kingdom and the European Union.” She went on to say that, “We will seek the best deal possible as we negotiate a new agreement [on the single market] with the European Union.” Currently, Norway and Switzerland, although not members of the EU, enjoy certain benefits of the union on an opt-in basis as established through various treaties and agreements. However, May’s statement underlines the UK’s increasingly isolationist position, and its determination to forge its own path in the international community. By insisting creating its own ‘model,’ the UK will have more opportunity to craft an agreement it sees as ideal; however, it also gives the remaining members of the EU more leverage in designing it as they see fit as well.

Regardless of the exact details of the new agreement, which will not be seen until well after Article 50 is triggered by March 2017, the UK will not have the same access to the EU Single Market that it does now. Even if the government secures some benefits of the current arrangement, the UK’s economy is likely to suffer from increased transaction costs in trade and limited access to the open market. In order to look for the best possible deal in the future, as May stated, it is important to understand how the UK’s economy currently interacts with the Single Market.

The UK’s economy is intrinsically linked to the EU Single Market. Half of the UK’s trade and foreign investments are involved with the EU, with 53 percent of imported goods and services originating in other member countries, and 44 percent of exports going to the EU. Like most developed countries, the UK primarily exports services, and this sector makes up over 75 percent of the country’s economic output. Additionally, the UK has maintained a trade surplus of about 5 percent of GDP, meaning that more is exported than imported. When the UK loses access to the Single Market, it will become more difficult to export to the EU due to higher trade barriers. Unless the UK can tap into a different export market, they are likely to lose this trade surplus and experience a decrease in economic output, leading to a higher deficit and cuts in government spending.

The Single Market also guarantees job mobility and free movement of people. There are currently 1.2 million Britons living abroad in the EU, with about 800,000 of them working. Furthermore, there are currently 3.3 million EU citizens living in the UK, with 2.1 million of them employed. Immigration concerns were a main cause of Brexit, so it seems unlikely that the UK will negotiate for the free movement of people in a new agreement with the EU. While proponents of Brexit might call this a success in taking ‘British’ jobs back from immigrants, the high employment rate of EU citizens in the UK is a sign of national economic prosperity, not a race to the bottom for limited jobs with low wages. Large companies located in UK cities will also look to relocate to other EU commercial centers in order to continuing benefiting from the free movement of their workers, goods, and services. The loss of both large employers and vast numbers of workers will lead to further depressed economic output in the UK.

Under the threat of stagnated or decreased economic growth and trade, the UK is already looking to potential new trade partners. At a state visit in early November, the president of Colombia said that a new agreement with the UK had the potential to be better than the current deal the South American country has with the EU. Colombia is part of the Pacific Alliance, a trade bloc composed of three other historically strong Latin America economics – Chile, Peru, and Mexico – which would provide an even larger opportunity for new UK trade.

May also visited India in early November, in her first bilateral meeting outside Europe, to discuss, among other things, a new potential trade relationship. Unlike Colombia, India does not currently have a trade deal with the EU, and any attempts to create over the last decade have ultimately been unsuccessful. As discussed earlier, the UK must secure partners that are interested in service sector exports; however, India has tough restrictions on importing professional services, such as business, banking, and legal sectors. Immigration is also a controversial issue between the two countries, and India wants more temporary student and work visas to the UK in exchange for allowing more business. However, since a main component of Brexit involves reducing the number of immigrants in the country, this seems to be an unlikely concession.

Finally, the UK also recently hosted China for trade talks, announcing several new agreements to strengthen investment and business between the two countries. China has committed to investing in the London Royal Albert Docks project, while the UK will reciprocate with an investment in the Asian Infrastructure Investment Bank. UK Chancellor Hammond remarked that the UK’s “trade relationship with China is now more important than ever.” Unlike India and Colombia, China will carry out this agreement before UK negotiations with the EU are finalized, signaling that China will remain a reliable trade partner regardless of the outcome of the UK’s involvement with the Single Market.

The decision to leave the EU, and thus the Single Market, could have devastating effects on the UK’s economy, unless it seeks new markets for service sector exports. Colombia, India, and China all represent opportunities to connect with robust economies that will provide the UK with the exit strategy it needs. However, similar to the question of Indian immigration, there are likely to be challenges along the way, especially as most countries will not negotiate a new trade until after the UK has triggered Article 50 and has completed talks with the EU. While the possibility remains that the UK will successfully negotiate to retain provisions of the current Single Market, it is extremely unlikely that the EU will let the UK cherry-pick only the parts they want. No matter what deals are struck with any country, concessions will have to be made. Thus, the UK’s economic plan moving forward must be pragmatic, as well as diplomatic.

Microwork: A New Approach for Labor Disparities

Labor disparities across the world have gained attention recently, regardless of income level. In wealthy countries like the United States, recent elections have addressed the “losers” of trade, with the unavailability of ‘blue collar’ jobs taking center stage. In many lesser-developed countries (LDCs), workers are historically excluded from global supply chains due to lack of education or technological knowledge. A new approach to labor development may be revolutionary in providing workers entry (or re-entry) back into the labor market, and it is similar to a development buzzword: microfinance.

Employing ‘Micro’ in the Labor Market

To combat the challenge of lower-income people’s exclusion from access to capital, microfinance was created by Mohammed Yunnus and his colleagues at Grameen Bank. Just a couple of decades later, thousands of microfinance institutions are providing small loans to low-income populations, connecting them to capital markets and economic opportunity. The idea of splitting up a loan into bite-sized, accessible portions was revolutionary when it was proposed. In 2012, Leila Janah, founder of “Samasource”, begged the question—why not create a similar model for labor markets?

Janah recently spoke at the World Bank Annual Meetings in Washington, DC, and explained on a panel for cutting-edge innovation how a concept she created—microwork– is revolutionizing the labor market. She founded “Samasource,” a NGO from San Francisco that uses technology to break up the job of one highly-skilled worker into ‘bite-sized’ pieces. Workers worldwide, with only a knowledge of reading and writing in English, receive on-the-job training, and easily program one part of a digital role in the supply chain. By focusing on just one aspect, they pass on the job to the next person, who completes their specific role, and so on. The end result is fully programed technology that costs the same, if not less, as hiring a highly-skilled programmer. Many more people from the “bottom of the pyramid” are employed, and at higher wages than their peers.

Challenges with Microwork in LDCs

Of course there are many challenges to this approach, as any new idea in development. First and foremost is local ownership. Convincing people to take part in a new, unfamiliar technology poses a challenge. Samasource, while the most famous, is not the only organization exploring “Microwork.” In the scholarly realm it is referred to as “Impact Sourcing” (ImS). A study by Sandeep and Ravinshankar found that it is difficult for impact sourcing companies to translate their objectives to local communities, but framing the endeavor as mutually beneficial will give ImS ventures the most success possible. Samasource believes their role is simply to be a middleman. They compete for contracts with large tech companies, break up the work, and send the pieces to centers in lower-income countries. Local entrepreneurs who know their communities and have invested their own capital in the centers staff these centers. They complete the trainings and oversee operations to ensure ownership.

Another major challenge is access to technology. Samasource is based on the motto “Give work, not aid,” advertising that “all [workers] need are laptops, connectivity, and training.” While technology, especially mobile phones, are widespread in lower-income countries, there is still a digital divide that separates low-income populations from access to technology. Phone ownership is commonplace, but laptops are much more expensive. By requiring each worker to have his or her own laptop, Samasource risks rewarding the young middle and upper classes, and excluding the most disparate populations. Impact sourcing boasts business objectives in addition to a social component. It is designed to create social value by providing lower-income people access to markets they would not have access to otherwise. Samasource accounts for this social value through their extensive on-the-job training, but they (and other ImS organizations) should also consider financing necessary tools such as laptops.

A macroeconomic challenge to microwork is infrastructure development. Many countries in sub-Saharan Africa where Samasource works do not have access to the internet, or consistent electricity that allows them to complete their jobs on time. At the World Bank Meeting mentioned above, Janah appealed to policymakers not to view infrastructure as roads and bridges alone, but to provide connectivity through fiber-optic cables and a stronger electrical grid in lower-income countries.

Overall Impact Sourcing has proved effective in lower-income countries to provide higher-paying jobs to those who have ‘lost’ from globalization by exploiting the lucrative, globalized high-tech markets. However, in the past couple of years this model has also been accepted in high-income countries like the US with large populations of displaced workers due to globalization and outsourcing.  Janah stated in an interview with Readwrite “I’ve been to parts of America like Mississippi where it’s as difficult to access high speed Internet as it is in Africa.” This infrastructure failure contributes to a domestic digital divide, and further separates populations from the high-tech labor market. Samasource and other companies are targeting the most at-risk populations in America (mostly in the Midwest and Rust Belt) where displaced workers are frustrated and have fueled the protectionist sympathies evident in our recent presidential election.

Challenges to Microwork in the American Context

The biggest employer of technological microworkers is Amazon Mechanical Turk. It lacks a social component, which categorizes it as a ‘crowdsourcing’ platform, rather than Impact Sourcing. It offers opportunities to complete ‘human intelligence tasks’ for small tasks for money, but with less structure. A 2012 article in the Portland Press Herald frames microwork as a self-employment mechanism, like Uber or dog-walking app Barkly: “”Crowd-sourced labor started off as this weird thing with people doing these funny little jobs in their spare time, but now it’s really catching on.” This approach, unlike Samasource’s, does not offer retraining skills or social value propositions. So while microwork does exist in the US, Samasource identifies the necessity of their nuanced model in addressing displaced workers.

While those who engage with microwork earn an income and new transferrable skills, there are still challenges that accompany this alternative approach to labor in the U.S. Microwork is nuanced and contract-based. For many displaced workers who may miss walking into a physical building every day, there is a cultural adjustment to self-starting each job and working on the computer, outside a physical space. Some workers may enjoy the independence, while others may feel further isolated. The establishment of microworker communities or meet-up groups could address this challenge.

A study that followed Amazon Mechanical Turk also found that workers may not be treated as fairly, especially as they are non-salaried and do not physically interact with their superiors. Jorg Flecker’s book “Space, Place and Global Digital Work” also reports that microworkers are less likely to create collective action, leading to exploitation. Samasource calls for those involved in Impact Sourcing to remember their social bottom line, as well as financial. Microwork, in the way Samasource originally founded it, is meant to lift communities out of poverty through access to the modern, digitized labor market. Social investments may need to be made in the communities of impact sourcing (such as health care access, financing local schools etc.), even when it does not maximize profitability.

Conclusion

Microwork, when carried out creatively and responsibly, is an effective approach to disparities in the global labor market. The target population—those who have ‘lost’ from free trade in both high and low-income countries—has seen an increase in income, as well as social capital through digital training. During a time of free trade skepticism, development solutions like microwork offer an alternative narrative, that personal losses from globalization may present new opportunities for growth.