Moving from Globalization 2.0 to 3.0

While seemingly elegant in theory, globalization suffers in practice. That is the lesson of Brexit and of the rise of Donald Trump in the United States. And it also underpins the increasingly virulent anti-China backlash now sweeping the world. Those who worship at the altar of free trade – including me – must come to grips with this glaring disconnect.

Truth be known, there is no rigorous theory of globalization. The best that economists can offer is David Ricardo’s early nineteenth-century framework: if a country simply produces in accordance with its comparative advantage (in terms of resource endowments and workers’ skills), presto, it will gain through increased cross-border trade. Trade liberalization – the elixir of globalization – promises benefits for all…

In the US, Trump’s ascendancy and the political traction gained by Senator Bernie Sanders’s primary campaign reflect many of the same sentiments that led to Brexit. From immigration to trade liberalization, economic pressures on a beleaguered middle class contradict the core promises of globalization…

In short, globalization has lost its political support – unsurprising in a world that bears little resemblance to the one inhabited by Ricardo two centuries ago. Ricardo’s arguments, couched in terms of England’s and Portugal’s comparative advantages in cloth and wine, respectively, hardly seem relevant for today’s hyper-connected, knowledge-based world. The Nobel laureate Paul Samuelson, who led the way in translating Ricardian foundations into modern economics, reached a similar conclusion late in his life, when he pointed out how a disruptive low-wage technology imitator like China could turn the theory of comparative advantage inside out…

Of course, this isn’t the first time that globalization has run into trouble. Globalization 1.0 – the surge in global trade and international capital flows that occurred in the late nineteenth and early twentieth centuries – met its demise between World War I and the Great Depression. Global trade fell by some 60% from 1929 to 1932, as major economies turned inward and embraced protectionist trade policies…

Similarly, the means of Globalization 2.0 are far more sophisticated than those of its antecedent. The connectivity of Globalization 1.0 occurred via ships and eventually railroads and motor vehicles. Today, these transportation systems are far more advanced – augmented by the Internet and its enhancement of global supply chains. The Internet has also enabled instantaneous cross-border dissemination of knowledge-based services such as software programming, engineering and design, medical screening, and accounting, legal, and consulting work.

The sharpest contrast between the two waves of globalization is in the speed of technology absorption and disruption. New information technologies have been adopted at an unusually rapid rate. It took only five years for 50 million US households to begin surfing the Internet, whereas it took 38 years for a similar number to gain access to radios…

Unfortunately, safety-net programs to help trade-displaced or trade-pressured workers are just as obsolete as theories of comparative advantage…

The design of more enlightened policies must account for the powerful pressures now bearing down on a much broader array of workers. The hyper-speed of Globalization 2.0 suggests the need for quicker triggers and wider coverage for worker retraining, relocation allowances, job-search assistance, wage insurance for older workers, and longer-duration unemployment benefits.

Stephen Roach cautions, “the alternative – whether it is Brexit or America’s new isolationism – is an accident waiting to happen.” Globalization is not only inevitable, the most recent wave is complete. The backwash is populated with opportunist capitalists jumping ship this time for a 10% wage advantage instead of greater – some fleeing China to Mexico for the second time. Replicating the short lurch that followed the passage of NAFTA in the Clinton years.

What comes next in emerging markets, newly-developed and developing economies will be friendly competition and cooperation. That already is a central point of advocacy in China and ASEAN nations. Obama and President Hillary [probably] are stuck with the stereotypical American political solution of playing the blame game to unemployed and underemployed constituents – while Congressional know-nothings continue their death spiral-dance with religious conservatives hoping to retain their seat-of-the-pants veto of any legislation that might aid American workers. We’re faced with the potential of nothing changing in Washington until the elections of 2022 and 2024.

OTOH — If Americans are bright enough to remove bigots-pretending-to-be-conservatives from Congressional power in the November election, there may be an opportunity to implement the sort of safety net Dr. Roach suggests. We’ll see. Part of being both an optimist and cynic is my confidence in science and knowledge aiding our species in solving the problems we create. Just not in my lifetime.

Mexico’s human rights agency says police murdered 22 at ranch

Federal police killed at least 22 people on a ranch last year, then moved bodies and planted guns to corroborate the official account that the deaths happened in a gunbattle, Mexico’s human rights commission said Thursday.

One police officer was killed in the confrontation in the western state of Michoacan on May 22, 2015. The government has said the dead were drug cartel suspects who were hiding out on the ranch in Tanhuato, near the border with Jalisco state.

The National Human Rights Commission said there were also two cases of torture and four more deaths caused by excessive force. It said it could not establish satisfactorily the circumstances of 15 others who were shot to death…

Mexico’s national security commissioner, Renato Sales, who oversees the federal police, denied the accusations, holding his own news conference before the rights commission had finished its own…

“The use of weapons was necessary and proportional against the real and imminent and unlawful aggression,” Sales said. “That is to say, in our minds they acted in legitimate defense.”

Thirteen of the 22 people the commission said were killed had been shot in the back…

Law and order in our southern neighbor. A police state is a police state – even when they’re killing criminal suspects – without a trial.

The perfect example of Mexico’s corruption

Here is the roadmap. Here is the method. Here is the tested formula for carrying out the looting. Veracruz is the model for what happens in the rest of Mexico, state after state, governor after governor. The looting carried out weekly, monthly, every six-year term. Javier Duarte is the archetype of the greed of many who govern a rich country peopled by millions of poor. Javier Duarte is the stinking example that shows how an administration can become a plunderer. An omnipotent governor becomes an unpunished looter. He is accused, criticized, exposed and still untouched.

He remains immune from the magnificent report published in the Animal Politico website with Mexicans Against Corruption, detailing what he did, how he did it, when he did it. The corruption is described step by step. The government of Veracruz delivered US$35 million to a network of 21 companies allegedly to buy blankets, school supplies and shoes. These supplies did not reached their destination. The money was allegedly paid to “partners” who are residents of shantytowns who signed [incorporation] documents in exchange for promises of support. The scheme was created with made-up tenders for bids and direct contract awards, with corrupt officials and manipulated people, with a governor who promoted corruption and benefited from it. It was a network of shell companies and apocryphal partners, thanks to which Duarte and his people pocketed millions from the public treasury. It’s the Veracruz model.

It’s the Mexican model. RTFA for details, examples, a tale that goes back through decades of official corruption.

The Pope will be pissed when he learn hustlers are selling tickets to Ciudad Juarez mass


Click to enlargeStreet vendors during Pope’s visit to Philippines

The local Mexican governments in Chiapas and Chihuahua have been accused of wrongfully profiting from Pope Francis’ visit by selling tickets to the masses he will be holding in both locations for as much as US$200…

“The Nunciature of Chihuahua handed over thousands of tickets to the local government in Ciudad Juarez and the state government of Chihuahua to pay for the altar for the pope’s mass which cost 20 million pesos (US$1.1 million),” economist, journalist and writer Marco Torres told teleSUR…

The Mexican Catholic Church’s office in charge of the pope’s visit has refused to respond to messages and phone calls by teleSUR asking about the sale of tickets and for the list of people who will be occupying the front rows at the Basilica…

According to the Ciudad Juarez municipal government spokesman, Carlos Castaño, there will be 20,000 seats for about 200,000 people who are expected to attend the mass on Feb. 17, the last day of the pope’s visit to Mexico which is to begin Feb. 12…

Chihuahuan journalist Alejandro Fernandez provided teleSUR with an advert announcing the sale of tickets to the pope’s event in Tuxtla, Chiapas.

teleSUR called Farmacias del Ahorro in Tuxtla and a person who identified herself as Tatiana Vazquez said that initially they were told they would be selling tickets to Pope Francis’ event in that city, but that they were later told the sale of passes would be handled by other companies.

Vazquez was unable to say where the tickets were available for purchase, but according to their advert, tickets were to cost over US$200 in the Diamond Zone. The ad also announces VIP tickets for about US$150, and US$110 for tickets to a general area…

Recently, however, the Catholic church and Mexican officials denounced that there were scammers who were selling fake tickets to see the pope and warned people against purchasing them.

Sounds more and more like a rock concert every day. The quest for scarce goods.

Marijuana legalization in the US making Mexican drug gangs poorer

We’re still not sure of the full impact of marijuana legalization, in terms of pot use and abuse, in the states that have legalized. But a report from Deborah Bonello for the Los Angeles Times shows one way that legalization for recreational and medical purposes is working:

The loosening of marijuana laws across much of the United States has increased competition from growers north of the border, apparently enough to drive down prices paid to Mexican farmers. Small-scale growers here in the state of Sinaloa, one of the country’s biggest production areas, said that over the last four years the amount they receive per kilogram has fallen from $100 to $30.

The price decline appears to have led to reduced marijuana production in Mexico and a drop in trafficking to the U.S., according to officials on both sides of the border and available data.

As Bonello reports, the drop in price — and competition from higher-quality US-made marijuana — is hitting drug cartels, too. So now they have to look to other opportunities, or look for ways to deal in high-quality cannabis, to make up for lost profits, or just accept the hit in their finances.

This was a predictable outcome of legalization, but still a big deal and welcome news. One of the major arguments for legal pot is that it will weaken drug cartels, cutting off a major source of revenue and inhibiting their ability to carry out violent acts — from mass murders to beheadings to extortion — around the world. And cannabis used to make up a significant chunk of cartels’ drug export revenue: as much as 20 to 30 percent, according to previous estimates…

❝Will this be enough to completely eliminate drug cartels? Certainly not. These groups deal in far more than pot, including extortion and other drugs like cocaine and heroin.

Still, it will hurt. As the numbers above suggest, marijuana used to be a big source of drug cartels’ revenue, and that’s slowly but surely going away…But it’s a potentially huge win for Mexico and other Latin American countries.

Which is exactly what was predicted by the example of other nations more enlightened than Congress and the average flavor of American politicians. This is what anyone who examines the results of prohibition – and the end of prohibition – around the modern world would expect.

The rest is silence – and cowardice.

Customs coppers save us all from smuggled tamales


Click to enlarge

Customs officials announced Wednesday that they seized 450 pork tamales smuggled from Mexico to Los Angeles in luggage earlier in the month.

The traveler, who was not named, admitted having food on a declaration form but denied it was pork products when questioned, according to U.S. Customs and Border Protection. Inspectors then found hundreds of tamales wrapped in plastic bags.

“Although tamales are a popular holiday tradition, foreign meat products can carry serious animal diseases from countries affected by outbreaks of Avian Influenza, Mad Cow and Swine Fever,” said Anne Maricich, acting director of field operations for Customs.

Uh-huh. What’s the first country you think of when you hear about avian flu, mad cow disease and swine fever? I think most times when I’ve blogged about an outbreak of these – it’s been here in the GOUSA.

Mexico’s Supreme Court says OK to grow your own, dude!

Mexican cannabis

The Mexican Supreme Court has opened the door to legalizing marijuana, delivering a pointed challenge to the nation’s strict substance abuse laws and adding its weight to the growing debate in Latin America over the costs and consequences of the war against drugs.

The vote by the court’s criminal chamber declared that individuals should have the right to grow and distribute marijuana for their personal use. While the ruling does not strike down current drug laws, it lays the groundwork for a wave of legal actions that could ultimately rewrite them…

The decision reflects a changing dynamic in Mexico, where for decades the American-backed antidrug campaign has produced much upheaval but few lasting victories. Today, the flow of drugs to the United States continues, along with the political corruption it fuels in Mexico. The country, dispirited by the ceaseless campaign against traffickers, remains engulfed in violence…

The marijuana case has ignited a debate about the effectiveness of imprisoning drug users in a country with some of the most conservative drug laws in Latin America. But across the region, a growing number of voices are questioning Washington’s strategy in the drug war. With little to show for tough-on-crime policies, the balance appears to be slowly shifting toward other approaches…

Although the rising production of higher-quality marijuana in the United States reduces demand for Mexican imports, experts say that Mexican gangs continue to account for an important percentage of the American supply…

The one thing that could significantly affect the cartels’ marijuana business is legislation in the United States. As marijuana growing for commercial purposes in America expands, demand for Mexican marijuana could eventually dry up.

Marijuana is just one of many sources of income for the cartels, which smuggle narcotics across the border to the United States and run kidnapping and extortion rings at home. The criminal infrastructure will persist whether or not marijuana use is legal.

President Enrique Peña Nieto said his government would respect the Supreme Court’s decision, but his government, legislators and security and health officials all oppose legalization, as does the Roman Catholic Church.

Armando Santacruz is determined to change minds. Invoking the specter of Mexico’s most notorious drug kingpin, Joaquín Guzmán Loera, known as El Chapo, he likes to remind people: “Bad regulation is better than whatever regulation El Chapo and the narcos can provide.”

Gangsters will always find way to profit from a corrupt society. Reducing that corruption by modern means, enlightened remedies reduce the effectiveness of criminal elements, diminish the profitability of corruption. A lesson we should have learned decades ago.

The process of removing the whole effect of bad laws, incompetent understanding – like Nixon’s War on Drugs – will continue to be an uneven process. Like any social reform. Nevertheless, as victories roll out, progress will not be halted.

Torture in Mexico reaching catastrophic levels

La Jornada: According to Amnesty International, Mexico’s torture epidemic continues, reaching “catastrophic levels in the past year, with more than double the number of reports at the federal level of suffocation, rape and other sexual abuse, electric shocks and beatings.”

In the report, [.pdf full English text] AI stated that the number of complaints for torture more than doubled between 2013 and 2014, from 1,164 to 2,403, according to the Attorney General’s Office…

…It was asked why President Enrique Peña Nieto has not launched an initiative in Congress for a general law on torture, as a first step in addressing the crisis, when he said he would. The deadline for the Legislature to approve the initiative is in less than three months (January 2016) and it has not yet been delivered…

Erika Guevara-Rosas, Americas Director AI, said: “A strong general law against torture, which means more than words and ensures justice for the victims, would be a good first step for Mexico to recover from the deep crisis of human rights in which it is immersed.”

She added that it was hard to imagine a year ago that Mexico’s torture crisis could get any worse, and now we see that that is exactly what happened as the government continues to ignore a crisis it created.

AI noted in its report that the President’s commitment to the law is a major step forward, but these paper promises have not been accompanied by concrete results that would translate into a change in people’s lives.

Same as it ever was. Not just in Mexico, not just in Israel, not just in offshore prisons run by the United States. The mentality of many “freedom-loving” democracies often finds excuses for torture.

Texas/Mexico pipeline opposition builds in Big Bend country

No pipeline
Click to enlargePhotograph/Tom Dart

Thorny mesquite branches scratched the sides of James Spriggs’ battered old Chevrolet truck as he drove the rutted pathway from his house towards other, less natural, spiky objects.

On his 4,400-acre ranch there are deer, quail, jackrabbits, roadrunners, dragonflies and even the occasional eagle or mountain lion. And there are wooden stakes indicating the route of a natural gas pipeline that will slice through his property against his wishes.

“They stand out, kind of out of the ordinary, when the light’s correct on them,” he said, picking up a stake that lay flat beneath a small tree. Since their discovery, Spriggs and others have made it their mission to protest a proposal that would be routine almost anywhere else in the state.

Many moved to Big Bend because it is spiritually and physically unlike much of the rest of Texas, which long ago kowtowed to the boom-and-bust thrust of Big Oil, with all its possibilities and problems.

Some 426,000 miles of pipelines already crisscross Texas, acting as the cardiovascular system of the state’s thriving economy. Only one large area is untouched, but that is about to change – unless a diverse group of citizens can prevail in an underdog fight against billionaires, anemic regulators and new economic realities…

The oil industry may be squirming because of the low price of crude, but natural gas pipelines are sprouting as a response to soaring demand in Mexico and legal changes there in 2014 that make it easier for foreign exporters to sell the fruits of the Texas fracking boom…

The Trans-Pecos pipeline is a partnership between companies controlled by billionaires: Mexico’s Carlos Slim, reportedly the world’s second-richest man, and Kelcy Warren, head of Dallas-based Energy Transfer Partners, which in February welcomed former Texas governor and failed Republican presidential hopeful Rick Perry to its board of directors.

They hope that construction will start in the first quarter of next year and in 2017 the 42-inch pipeline will transport 1.4bn cubic feet of natural gas per day from a processing plant near Fort Stockton to the border, where the line will go under the Rio Grande and connect with Mexican infrastructure.

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