The big yellow grader, one last time

Adani is getting on with the job of building its Carmichael coal mine as opponents prepare for a renewed campaign of protests.

That’s the lead in this SMH story about the Carmichael mine. But the picture released is the same yellow grader that’s been there for months.

This is a puzzle. On the one hand, Adani’s pronouncements exude confidence that the mine will be shipping coal within a couple of years. That was reinforced in a recent interview with Gautam Adani himself.

On the other hand, the company is showing no signs of urgency about getting to work. They’ve advertised only three jobs on their portal this month, after cutting lots of staff last year. And there’s been no announcement regarding contractors, consulting engineers and so forth, even though all their previous partners have either been sacked or walked away.

Given the subsidies Adani has recieved in India, the project might just be financially viable. But if so, why isn’t the corporation rushing to get it done while the political stars are aligned.

Adani again

In pointing out that Adani’s Carmichael mine wasn’t viable without government help, I focused on the possibility of a concessional loan from Australia’s Export Finance Insurance Corporation. As commenters have pointed out, Adani (a prominent crony of Indian PM Modi) looks like being able to charge above-market prices for electricity in India. I’m not clear whether this helps much to make the Carmichael project viable. Over the fold, an exchange I had with Charles Worringham.

In other news, it seems likely that Adani will move fairly slowly even after the environmental clearances come through. They’ve announced on their Facebook page that they are filling “more than 50” positions for pre-project work, and there are a dozen or so HQ jobs listed on their jobs portal. That’s a long way short of their announcements in January that they were ready to start digging the moment they got the go-ahead.

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Can globalization be reversed (wonkish)

The term “globalization” came into widespread use in the 1990s, about the same time as Fukuyama’s End of History. As that timing suggests, globalization was presented as an unstoppable force, which would break down borders of all kinds allowing goods, ideas, people and especially capital to move freely around the world. The main focus was on financial markets, and the assumption was that only market liberal institutions would survive.

The first explicit reaction against globalization to gain popular attention in the developed world[1] was the Battle of Seattle in 1999, but the process, and the neoliberal ideology on which it rested, didn’t face any serious challenge until the Global Financial Crisis of 2008. The Crisis destroyed Neoliberalism as a political project with positive appeal, but its institutions have remained in place through inertia.

Now, however, globalization is finally facing serious threats, most immediately from the nationalist[1] right, seeking to restrict movement of people and goods across national borders. There hasn’t yet been any serious challenge to financial globalization, but faith in the wisdom and beneficence of financial markets has disappeared.

An obvious question here is: can globalization be reversed? My short answer is: within current political limits globalization can be reversed least partially in the case of trade, but can only be slowed in the case of movements of people. I’m still thinking about financial flows.

Starting with trade, the reaction to Trump’s various trade wars has shown that the 21st century system of world trade based on complex supply chains involving many different countries is quite fragile. An across-the-board tariff rate of 10 per cent, the level that prevailed in 1960, would render supply chains with multiple border crossings uneconomic. The more likely pattern, again as illustrated by Trump, would involve a lot of unpredictable variation.

If Trump’s tariffs are maintained, and met with retaliation, the obvious response will be to return to the simplified supply chains of the 20th century. Manufactured goods would be produced in a single jurisdiction (maybe using imported raw materials, which are rarely subject to tariffs) either for domestic consumption or for export as finished products.

Moderate tariffs won’t, however, be enough to produce substantial import replacement of the kind needed to make (for example) American manufacturing great again. The force of comparative advantage is too strong for that. A return to something like Smoot-Hawley tariff scales (up to 60 per cent) would be needed. This seems to be outside the limits of what could happen political, given the increase in consumer prices that would result. However, any judgement about political limits has to be taken with a grain of salt these days.

What should we think about the costs and benefits of such a transition? Breaking down complex supply chains involves some obvious losses in efficiency. It’s hard to estimate how large they are on a continuing basis, but there would certainly be some big economic losses in the transition.

The current system enables US companies to hire subcontractors with exploitative labor practices, they can, as Naomi Klein pointed out in No Logo, be put under pressure to fix things. If most production was undertaken by firms in poor countries, there would be less of an opportunity for such pressure.

Complex supply chains also facilitate tax evasion through transfer pricing. However, this problem is due at least as much to the operations of the financial system as to the organization of physical production.

A lot depends on the specifics of tariff structures. Trump’s moves so far have been largely random, and the responses have been targeted at causing political pain for Trump rather than as part of a coherent strategy. In these circumstances, the reversal of globalization in trade is likely to cause more harm than good.

fn1. Nationalism in this context means something like “dominant identity nationalism” where dominant identity is a placeholder for those considered to be “real” members of the nation concerned,for example, white Christians in the US case. I plan to write more on this, but may not get around to it for a while.

fn1. A commenter at Crooked Timber points out that the Zapatista rebellion in Mexico (1994) was prompted by the signing of NAFTA

Keynes and Versailles, 100 years on

The 100th anniversary of the Treaty of Versailles is coming back. I have a piece in The National Interest which ran under the headline (selected by the subeditor, as is usual), America Needs to Reexamine Its Wartime Relationships. Keynes first came to public attention with his critique of the Versailles Settlement, The Economic Consequences of the Peace, whith foreshadowed, in important respects, The General Theory of Employment, Interest and Money.

I argue that the rise, fall and rise again of the standing of Keynesian macroeconomics runs in parallel with views on the justifiability of the terms imposed at Versailles and more generally of the use of war as a policy instrument.

Explaining Adani: why would a billionaire persist with a mine that will probably lose money?

That’s the title of my latest piece in The Conversation, republished on the ABC website. Possible answers

So what could be going on? Perhaps Gautam Adani is willing to lose a large share of his wealth simply to show he can’t be pushed around. Alternatively, as on numerous previous occasions, his promises of an imminent start to work may prove to be baseless.
The third, and most worrying, possibility is that the political pressure to deliver the promised Adani jobs will lead to a large infusion of public money, all of which will be lost.
The $900 million Adani sought from the Northern Australia Infrastructure Facility in 2017 would be enough to keep the project going for a couple of years, without the need for Mr Adani to risk his own money. It now appears that a similar sum might be sought from the Export Finance and Insurance Corporation.