Issues, Ideas and Insights by Atul Singh

America: Autarky over Efficiency

In America, it is now fashionable to talk about energy independence. When both Barack Obama and George W Bush start mentioning the same subject then it is an indication that a fundamental shift is taking place in the world’s largest economy. The rage these days is ethanol and corn is the main crop used for its manufacture. Demand for corn has, therefore, gone up and US acreage devoted to corn in 2007/08 will be the highest since 1944. According to most experts, corn is not a very good fuel crop and yet the US government is handing out subsidies for corn based ethanol.

In fact, sugarcane is a much more efficient fuel crop and Brazil produces sugarcane based ethanol at a little over half the price of American ethanol. But the US imposes tariffs on ethanol imports from Brazil and refuses to allow free trade. This means that Americans end up paying higher prices for ethanol. American production of ethanol increases demand for corn and pushes up corn prices. This in turn pushes up prices of meat. Also, more acreage for corn comes at the expense of other crops like soybeans and wheat, pushing up their prices as well. So energy autarky ends up impoverishing the average American consumer and harming the Brazilian sugarcane and ethanol producers.

Another example of the move towards autarky came on Friday, the 30th of March when the Bush administration declared that it would reverse more than 20 years of a free trade policy and impose potentially steep tariffs on Chinese manufactured goods. Its justification for doing so is that China is illegally subsidizing some of its exports which is leading to widening trade deficits, the figure last year reaching a record $232.5 billion. The unspoken reason is concern over the loss of jobs in American manufacturing which is increasingly unable to compete with counterparts in developing economies. Again, the tariffs shall harm American consumers. They will end up paying higher prices for goods they could have purchased more cheaply. The tariffs shall also lead to continued investment in American industries which otherwise would not have survived. This investment shall not be efficient as it could have been invested instead to retrain workers, improve schools and develop globally competitive industries.

Autarky is seldom a good option and, in a global economy, it can have severe consequences. If the Chinese retaliate and impose duties on Boeings or Windows, American workers and Chinese consumers would suffer. The ensuing “tit for tat” trade war might end up beggaring everyone in the process.

Why are Americans, erstwhile champions of free trade, turning against their own idea? The reason for it lies in the internal political economy. While the economy has grown over the past few years, the gains of that growth have accrued primarily to owners of capital. Workers have lost jobs as companies have relocated overseas or been unable to survive foreign competition. Since healthcare benefits have been associated with jobs, the loss of employment has been traumatic for the individuals concerned. For politicians, the easy solution is to blame the foreigner instead of carrying out fundamental reforms to improve competitiveness. By imposing tariffs on Chinese goods, politicians can grab votes from workers of threatened industries along with campaign donations from the owners. When considering America’s fixation with ethanol it might be useful to remember that the top 10 corn-growing US states hold nearly 40% of the electoral college votes required to secure the presidency. Championing corn based ethanol helps the economy of these states. It also wins votes and campaign funds apart from burnishing an eco-friendly image.

With so much to gain, American politicians are being tempted to raise the barricades but they should remember that it is by being an open economy and an open society that America has become America.

Is Russia now a criminal power?

Over the past few months some developments in Russia have been extremely worrying. Anna Politkovskaya, a fearless investigative journalist, highly respected both at home and abroad, was brutally murdered on 7 October 2006 in Moscow. A fervent supporter of human rights and the rule of law, she was highly critical of the pro-Moscow Chechen Prime Minister Ramzan Kadyrov and his overlord President Putin. In fact, there were widespread rumours that Kadyrov was behind Politkovskaya’s murder which was intended as a birthday gift for Putin. These rumours might be nothing but a figment of imagination but what is worrying about Russia these days is that critics of Putin tend to meet violent premature deaths. The sensational murder of Alexander Litvinenko through polonium-210 radiation poisoning in London barely three weeks after Politkovskaya’s murder demonstrated that Russian violence was moving beyond Russian borders.

Apart from such murders, the Russian government has been gradually acquiring increasing powers, weakening democracy and diminishing individual liberties. Tycoons who have fallen out of favour with the Kremlin are either in jail, exile or even dead, and their properties have been confiscated by the state. The government has acquired greater control of the media and independent reporting has suffered greatly. Russia has torn up contracts with foreign companies and interfered in the internal politics of its neighbours. It has also threatened to cut off gas supplies to countries who fail to do its bidding and Putin himself has lashed out against America at the Munich security conference.

Today, an alarming phenomenon in Russia is the rise of jingoism tinged by xenophobia and racism. According to Sova, a group that monitors racist violence, 539 people suffered racist attacks last year, of which 54 died. It is a curious change from the Soviet era when Russia became famous for promoting “friendship between peoples” and hosting large numbers of students from the developing world. Increasingly in recent times, the dominant sentiment in political establishment is “Russia for Russians”. The government banned foreign workers from retail jobs on 1 April this year despite its declining population and skills shortage. Human rights activists described the legislation as state-sponsored racism.

Stemming from this jingoism is Russia’s determination to control its restive regions. The collapse of the Soviet Union has been publicly regretted by Putin, a former KGB colonel, and he does not want the huge and disparate Russian state to unravel further. Ever since Putin came to power he has been tightening his reign on the regions and, two years ago, he replaced elected regional governors with his own appointees, a move which was a further blow to a young Russian democracy. Earlier this year, he appointed Ramzan Kadyrov as President of Chechnya and, this week, Kadyrov is throwing an extraordinarily expensive bash to inaugurate his Presidency. Kadyrov is a violent 30 year old nicknamed as “little Saddam” because of his extreme brutality. Suspected of murdering Anna Politkovskaya, this is a man who runs a private militia, is suspected of personally torturing people sometimes by burning them with a blow torch and is foisting a Stalin-like personality cult upon Chechnya. Despite Kadyrov’s well documented brutality and criminal past, Putin is backing him as the man who can secure Russian control over Chechnya.

What is happening in Russia does not bode well for the world. The criminalisation of the world’s biggest country is a scary prospect especially in the context of its xenophobic nationalism. Difficult though it will be, it is now time for the world to tame the Russian bear.

Interview with Gunnar Beck, Senior Lecturer at University of London, UK

1. Why is Merkel reviving the EU constitution?
She is not exactly reviving it. She has recognised that the term constitution is offensive to some Members but she may yet try to agree a new consolidated treaty based on the constitution text. This could be justified on the grounds that it would be a clearer and more structured exposition of the EU’s legal framework, and domestically she would stand to gain considerable political credit as the German population is still overwhelmingly pro-EU.

2. The constitution has been rejected by referendums in the Netherlands and France? Why is she staking her political capital on a seemingly lost cause?
She is not – so far she has not been very clear in saying what type of text she favours, and most States agree something needs to be done to reform the EU.

3. Is her attempt necessary and is its timing right?
Yes, I think the decision-making processes need to be reformed, qualified majority voting should be extended now that membership has practically doubled in three years. With national elections never far off the agenda timing is rarely right: in fact the 2nd half of 2007 immediately after the French Presidential election and well ahead of the UK election is probably the best timing there will be for some time. (Qualified Majority Voting (QMV) is a voting procedure employed in the Council of the European Union for some decisions. According to the procedure, each member state has a fixed number of votes. The number allocated to each country is roughly determined by its population, but progressively weighted in favour of smaller countries.)

4. What difference shall the constitution make?
The Constitution did not radically extend the EU’s powers except in relation to Justice and Home Affairs legislation. Far more important wd have been the acceptance of the term ‘constitution.’ Such acceptance is now virtually impossible.

5. Do you think referendums should be held to approve the constitution?
Difficult to say, the answer depends on whether one thinks generally that referenda are appropriate ways of determining major political issues.

6. What do you think about the opposition to the constitution especially in countries like the UK and Poland?
I cannot really comment as an officer of the UK parliament.

7. What do you think of the Polish attempt to include God in the constitution?
The Constitution contained and was designed to contain central values which have determined Europe’s intellectual and political life, the Christian tradition is extremely important in this respect, and for this reason it is not immediately obvious why it should have no place, divisive as any statement of religious allegiance may be nowadays. This is purely my personal view.

8. Do you think the upcoming French elections would have a significant impact on the constitutional process?
Yes, most certainly, Royal is likely to be more sympathetic to its revival but Sarkozy will not necessarily be opposed. France in spite of its Non to the Constitution is not anti-European.

9. Why are many Europeans uncomfortable with the idea of a constitution?
For different reasons including opposition to immigration, political alienation, perception of unaccountability as much as a genuine fear of amalgamation. The Constitution provided an opportunity to express dissatisfaction when there are not many and when most electorates are regularly presented with indistinguishable options in national elections.

10. How do you envisage the outcome of Merkel’s initiative?
This is difficult to say. The timing is probably right, and there is widespread agreement that something. needs to be done. Much will depend on how realistic she is. And if anything she has proved to be a realist in her political career so far.

Reviving the dead: Merkel and the EU Constitution

On the 25th of March 2007, the EU celebrated its 50th birthday in Berlin. The German Chancellor, Angela Merkel, used the occasion to push for an EU constitution and declared that Europe’s leaders risked making an “historic error” if they were unable to sort out their constitutional wrangling. Rescuing the constitution has become the focus of the German six-month presidency of the EU and Merkel has set an aggressive timetable to achieve this goal. She wants a “short and concentrated” intergovernmental conference to agree to a new treaty by the end of this year and the ratification process to be over by spring 2009.

The EU constitution began with high hopes. In 2001, EU’s national leaders vowed to make the EU “more democratic, more transparent, more efficient” by creating a constitution. Prolonged wrangling followed and it was only in June 2004 that the constitution was finally created.

The current constitution consolidates all European treaties into a single document and for the first time proclaims the primacy of EU law over national law, a principle which so far has been established only by the jurisprudence of the European Court of Justice. It creates new jobs like the President of the European Council and a foreign minister, and gives the EU formal legal personality for the first time, enabling it to sign international treaties. At the same time it retains national vetoes and adopts a new double-majority voting system that shall enable laws to be passed if 55% of countries representing 65% of the EU’s population approve. Finally, the constitution can only come into force once it has been approved by each of the 27 member states.

Proponents of the constitution argue that an expanding EU simply cannot work unless it comes into force. On its 50th birthday, the EU is a 27 member club which might expand further and its institutions as well as its rules are under severe strain. The EU, therefore, has become more clumsy and bureaucratic. The constitution is the way it will become both more workable and more democratic. Furthermore, as Merkel has declared, the constitution would give Europe a higher profile on the world stage.

Opponents of the constitution see it as another example of “Eurocreep”, the process through which more and more control is ceded to the bureaucrats in Brussels. They fear that the EU is acquiring the trappings of a superstate and feel there are other ways to reform the EU.

20 of the member countries have ratified the current constitution while the other 7 have rejected it. Since Germany took over the presidency of the EU Merkel has been trying to restart the constitutional process. Earlier this year, on the 26th of January, the countries that have approved the constitution gathered in Madrid to breathe new life into the dead document. Having ratified the constitution, they talked up its virtues and stated that they wanted the document to be more ambitious, giving the EU a bigger role in social policy, fighting climate change and immigration. This alienated at least 5 of the remaining 7 countries, judging from the fact that Britain, Sweden and Denmark sent only junior diplomats to monitor the Madrid meeting while France and the Netherlands sent none at all. Even the Berlin Declaration to commemorate EU’s 50th anniversary proved to be a highly contentious affair. The declaration is supposed to be a document reaffirming EU’s values and outlining future goals. However, this fairly innocuous and bland document provoked disputes. Vaclav Klaus, the Czech President, criticized the “untransparent” way in which the declaration had been drafted. Such was the extent of the disputes that , the 27 heads of government were not even asked to sign the declaration to avoid the risk of embarrassing refusals.

Merkel’s attempt to revive the constitution is deeply flawed. The raison d’etre for a constitution was to remove the democratic deficit of the EU. However, the constitution has not caught the fancy of many nations. The French and the Dutch have already rejected it in referendums in 2005. The constitution evokes strong feelings in the UK and Tony Blair was forced to accept the idea of calling a referendum on the issue. It was only the No votes by the Dutch and the French that saved him from an unpleasant and unwinnable referendum. Meanwhile, Vaclav Klaus has declared the current constitution to be “not usable and acceptable” and a new one as not a priority, a view shared by his Polish counterpart who has already dismissed Merkel’s timetable as unrealistic. Merkel’s ambitious timetable will impose early political tests for a new British prime minister and a new French president; both countries will have new leaders later this year who will have to convince a deeply eurosceptic public.

Merkel’ unstated plan is to trim the constitution, make it appear less ambitious and allow the leaders of the remaining 7 member countries to sidestep public opinion and ratify the document with parliamentary votes. The plan makes three grand assumptions. Firstly, that Nicolas Sarkozy would win the French Presidential election. His rival, Segolene Royal, has promised a referendum on the constitution and demanded a social protocol focusing more on workers’ rights and less on economic liberalization. On the other hand, he is in favour of a slimmed down document which would be approved by the parliament. The second assumption is that Gordon Brown would succeed Blair and, as he is averse to a referendum, the constitution would be approved by the British parliament. The final assumption is that once these two heavyweights approve, other countries like the increasingly euro-sceptic Dutch, the idiosyncratic Poles and the cavalier Czechs will follow.

Not only are Merkel’s assumptions flawed and unrealistic, her project to revive the constitution is unacceptable in principle. Europe’s elite has so far built the EU without consulting its people and, so far, the people have pulled along. However, something like a constitution is by its very nature an expression of the people’s will. In modern democracies, people deserve the right to say inconvenient Nos to their political bosses, even on the issues dear to the bosses’ hearts. The French and the British have the right to vote on the constitution while the others have a right not to be cowed down into accepting a document they dislike.

Finally, there is a possibility that European voters might not take kindly a constitution imposed upon them by their political leaders. In a recent opinion poll reported in the Financial Times, the majority in many European countries had an unfavourable view of the EU. Imposing a constitution will not add to EU’s popularity and, lest Merkel forget, the constitution for the first time creates the right for countries to leave the EU.