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Weekend reflections

April 20th, 2007

I’m finally making some progress on the problems that have plagued the site for the last couple of months. Unfortunately, I won’t have time to do much more for a little while, but with luck, discussion will be able to proceed.

So, weekend Reflections is on again. Please comment on any topic of interest (civilised discussion and no coarse language, please). Feel free to put in contributions more lengthy than for the Monday Message Board or standard comments.

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  1. April 20th, 2007 at 09:37 | #1

    Last night the ABC featured a documentary on micro-credit. Unlike some promotional material for the concept, this one covered the weaknesses as well as the strengths of the tool, for example the potential for permanent indebtedness if one’s microenterprise fails. It also covered the fact that the accumulation of capital by micro-credit agencies is very slow and hence their expansion to more of the poor is limited. Two solutions were offered for this problem: one was to expand micro-credit providers into conventional banks, enabling them to issue bonds and draw upon capital markets (criticism, raised in the program: this is basically turning micro-credit agencies into the high-transaction cost, profit-driven financial institutions they were trying to offer an alternative to in the first place) and the second was voluntary action, in the example shown by a suburban US group who send donations to start microcredit funds in Central America (criticism, not raised: voluntarism is pretty much tinkering at the margins). Conspicuously absent was any suggestion that foreign aid dollars raised from taxes might be used to provide a much larger capital supply. Instead, a certain amount of time was spent praising micro-credit as being so much superior to foreign aid, welfare, charity handouts, etc. This strikes me as a case of a useful tool becoming an ideological weapon, a plowshare being beaten into a sword if you will. Microcredit is being used as propaganda for neoliberal free-marketeering.
    At an economic level, it’s my understanding that the argument against direct wealth transfers rests largely on the concept of Pareto Optimality (it makes the donors worse off, and due to transaction costs it doesn’t necessarily make the recipients as well off as the donors are worse off). Rather than repeat Sen’s critique I’d like to ask a related question: concepts like Pareto Optimality rely on a dollar having the same value to a millionare and a slum squatter. But as micro-credit shows, a few dollars can have a life-transforming effect upon the slum squatter while the millionaire wouldn’t notice if they fell out of his pocket. Is there any work in economics (which might be readable by a non-economist like myself) that takes into account the different values of money at different economic levels, and extends this to consideration of foreign aid, welfare economics, etc?

  2. Roger Jones
    April 20th, 2007 at 19:53 | #2

    I am reading Yunus’ autobiography at the moment (founder of the Grameen Bank), which I bought in Dhaka eight weeks ago while attending a workshop on community-based adaptation to climate change. Inspiring stuff, and no, I don’t find the self-help line a trojan horse for neoliberal free marketing. I have worked in a community-based enterprise in the past that eschewed government funding because we wanted to be self-reliant (There was an initial employment grant that lasted 12 months but then we went cold turkey). We used micro-credit (CAA-Oxfam) to build business infrastructure to develop cashflow – all the while running an operation with stringent ecological, educational and community-based objectives.

    On another matter, check out the Lancet editorial this week:

    Australia: the politics of fear and neglect

    Australian clinical and public-health research is an emblem of excellence across the Asia-Pacific region. That enviable position is being put at risk by Prime Minister John Howard’s indiff erence to the academic medical community and his profound intolerance to those less secure than himself and his administration.
    The latest example of his complacency was a comment he made on a Melbourne radio station last week. He said that people living with HIV should not be allowed to enter and live in Australia—“prima facie, noâ€?, he asserted. Australia already has tough immigration rules for those with HIV. All hopeful migrants aged over 15 years are tested for the virus. Their applications stumble if they are found to be positive. To any visitor, Australian culture feels progressive and inclusive. This attractive exterior belies a strong undercurrent of political conservatism, which Howard is ruthlessly tapping into. As the Australian columnist Janet Albrechtson wrote recently, “the Australian polity is inherently conservative…a conservative coalition has ruled for 42 of 58 yearsâ€?.
    2007 is an election year for Australia. How the country interprets its past and sees its hopes for the future will be critical not only for the health of its people but also for the contribution Australia makes to world health. At present, Australian politicians are scoring well below their potential.
    Take Aboriginal health. The current health minister, Tony Abbott, recently insulted Aboriginal peoples by claiming that those who spoke up for indigenous health were simply “establishing politically and morally correct credentials�. On climate change, environment minister Malcolm Turnbull apparently sees little new in the latest alarming assessments by the UN’s Intergovernmental Panel on Climate Change.
    Reviewing the effect of successive Howard administrations on Australia’s academic community since 1996, the respected scientist Ian Lowe has written that “the present government has gone to extraordinary lengths to silence independent opinion within the research community�. This year provides an opportunity at the ballot box to bring a new enlightenment to Australian health and medical science. ■ The Lancet

  3. dave
    April 21st, 2007 at 13:17 | #3

    Hey guys can I just ask a quick question here about something which has always confused me.

    We are often told that the real reason the US is in the middle east is to control the oil. And that certainly makes sense in terms of controlling it against the local populations: its quite obvious that the presence of US influence stops the local people nationalizaing the oil etc, as in Iran in 1953.

    But what I simply dont understand is how the US allegedly uses this power against its rivals. We are told that the US is ‘keeping china out’ of middle east or central asian oil, but how exactly is this achieved? Is the oil then sold cheaper to the US? It doesn’t seem to be. It seems that the US intervenes against local populations to make oil safe for whoever wants to buy it on the world market, not just themselves. Or have I got this wrong?

  4. April 21st, 2007 at 14:18 | #4

    In response to the question about oil:

    If memory serves, several countries had signed contracts with Saddam’s former regime in relation to the oil. These countries included China, Russia, and France. The oil could not actually be sold as a result of UN sanctions.
    If I understand correctly, the war/regime change has nullified the former oil contracts. Furthermore, the Iraqi parliament has recently passed laws relating to oil extraction rights and related matters. Some have alleged that these laws were actually drafted by the Americans, with self-interest in mind. If I knew how to add links to this post I would give you some sources for this stuff.

  5. gaddeswarup
    April 21st, 2007 at 14:23 | #5

    The following post by the journalist Rajshekhar describes the transformation of Micro Finance Institutions:http://www.fracturedearth.org/?p=234. I did not understand the bits towards the end referring to Bourdieu’s notion of Habitus and how this explains the staff excesses leading to suicides of some borrowers. Rajshekhar is currently studying in UK and the first commentor in the post gives links to some earlier writings of Rajshekhar.

  6. gaddeswarup
    April 21st, 2007 at 14:47 | #6

    dave and happy revolutiomary:
    There are some links in the March 2 post in my blog:http://gaddeswarup.blogspot.com/2007/03/us-to-talk-to-iran-and-syria.html. There may be much more information since then.

  7. dave
    April 21st, 2007 at 14:54 | #7

    Yes I’ve read these posts. But they dont answer my question. They clearly show that the US is exercising power against the Iraq government in terms of exploiting the oil. And they also show that US companies are getting preferential treatment in oil rights.

    But how exactly is the US government exercising power over its rivals – Europe, China, etc with regard to oil? Is it charging them more or something like that ?

  8. Roger Jones
    April 21st, 2007 at 16:41 | #8

    gaddeswarup

    thanks for the link on micro finance. Interesting stuff – I think the link between financial stress and suicide should always be part of a lender’s larger responsibilities and inform their methods.

  9. April 21st, 2007 at 18:16 | #9

    I’ve long wondered why if unions are required to ballot their members before taking industrial action companies aren’t required to conduct secret ballots of their members – their shareholders – before taking industrial action such as lockouts.

  10. swio
    April 22nd, 2007 at 08:13 | #10

    dave,

    America’s objectives when it comes to oil are two fold.
    1) Ensuring that oil keeps flowing to the United States
    2) Being able to shut off access to oil to rival power’s if desired.

    The US does not really care who actually owns the oil or who gets the profits from it as long as the above two objectives are met. Saudi Arabia’s oil was basically nationalised with no objections from America. They also do not care about getting a cheaper price for oil. As long as oil gets to the market at a reasonable price and America is allowed to buy it objective 1 is acheived.

    It acheives those objectives by
    a) Ensuring oil is controlled by friendly regimes
    b) Controlling how the oil moves.

    Friendly regimes:
    Until the first Gulf War all Middle Eastern regimes except Iran were US friendly. The regimes in these countries are not very stong politically and need an outside backer to stay in control. It is a happy symbiosis between the leaders of countries like Saudi Arabia, UAE etc and the US. The regimes ensure the oil keeps flowing to the open market and the US provides military and political protection. If any of these leaders decided to cut off oil they would instantly become outcasts and follow some variation of Iraq’s fate since 1991.

    How the oil moves:
    WWII was in large part decided by access to oil. Japan and Germany lost because they were cut off from access to it. America has kept that lesson in mind. Almost all of the oil in the Middle East gets to market via oil tanker. If you look at a map and think about it this does not make alot of economic sense. It would be more sensible for oil to be transported to Europe via overland pipeline. Equally it would make sense for alot of Asia’s oil and natural gas to come via pipelines too, though perhaps not all the way from the Middle East. These pipelines have never been built in part because they would take away the US’s control over oil supplies. The US have the world’s only blue water navy. Once oil is in a tanker the US can decide if that tanker gets to its destination. What this means is that if China, for example, went to war with America the US Navy could cut off China’s oil supply and there’s nothing China could do about it. The same applies to all the nations in East Asia and Europe (although Europe could still get oil via Russia). It also works in the other direction. As long as Middle East countries use tankers the US can shut down their oil exports just as easily. The US is currently attempting to prevent a natural gas pipeline project that would connect Iran, Pakistan and India together (http://www.atimes.com/atimes/South_Asia/FI15Df03.html) and are working hard to ensure that the new land locked Caspian Sea oil fields are connected via pipelines that suit its interests.

  11. dave
    April 22nd, 2007 at 17:45 | #11

    Swio, thank you very much for that lucid explanation.

    So, in summary, the US uses its military power in the Gulf in three ways:
    1. Making sure no ‘maddies’ get control of the oil, who might try to stop it going to the US or get to powerful (ie Saddam Hussein in 1990)
    2. Ensuring (sometimes) that US companies are not shut out of oil contracts (ie acting as their protector)
    3. But mainly, ensuring that they can block oil deliveries – if they need to. This was the point I think I was missing. So if China started saying it was going to launch a war of liberation in south america, the US could block tanker transfers of oil to China. Of course, the sheer deterrent power of this means they never have to use it.

  12. swio
    April 22nd, 2007 at 18:59 | #12

    Essentially that is correct but I would disagree with two points.

    “Ensuring (sometimes) that US companies are not shut out of oil contracts (ie acting as their protector)”

    I am not really sure this is the case. US oil companies have not been getting fantastic deals in the Gulf for quite some time now. They are a powerful interest group in Washington, and the US government does take them very seriously, but they are offset by the fact that the Arab oil regimes in the Gulf are a powerful interest group in Washington in their own right. The Saudis have their own lobbyists, and lawyers. They have powerful friends all through the current administration that they have build up by cleverly investing in relationships over a long period of time. Both Bush’s are actually in this category.

    I would also say that’s not really the military power which is the most important part. Its the whole political, economic and military package working together.

  13. dave
    April 30th, 2007 at 00:58 | #13

    Swio, thanks for the feedback above. I will refine my comments:

    The US uses its soft and military power in the Middle East to achieve the following:
    1. Make sure US friendly regimes are in charge of the oil (and this has a strange feedback effect whereby the elites of these regimes then set up in the US, influencing it back)
    2. Ensure that the oil could be cut off by the US if it wanted to, by having a massive military presence in the gulf and opposes alternate methods of delivery (ie by pipeline) over which the US could not have theoretical control.

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