UNDERSTANDING CHINA: FUNDAMENTAL COMPONENTS OF A MUTUALLY BENEFICIAL AGENDA pp 123-139

Foreign Policy Journal of the Ministry of Foreign Affairs,Trade and Integration

LÍNEASUR 2FOREIGN POLICY REVIEW MAY-AUG, 2012

Minister of Foreign Affairs, Trade and Integration:Ricardo Patiño Aroca

Director of Línea Sur :Viceminister of Foreign Affairs, Trade and IntegrationMarco Albuja

Editor of Línea Sur: Jorge Forero

Editorial Assistant: Andrea Almeida Villamil

Editorial Council:Pablo Villagómez, Eduardo Mangas, Eduardo Paredes, Isabel Ramos, Txema Guijarro, Guillaume Long, Franklin Ramírez, Fernando Bustamante, Rafael Quintero, Magdalena León, Carol Murillo, Milton Reyes.



No. 2, May 2012ISNN 1390-6771

Vol. I, Issue 2, May-August, 2012.Quito, Ecuador.


Issue 2, May / August 2012 (Vol.1, Issue 2, May-August, 2012)Quito, Ecuador

LÍNEASUR

All text and images included in this work are registered under the License Attribution-NonCommercial-NoDerivs 3.0 of Creative Commons (cc by-nc-nd); http: //creativecommons.org/licenses/by-nc-nd/3.0/ec/

v. : il. ; 25 cm.May - August 2012Quarterly: January-May-September ISSN: 1390-67711. Foreign Policy. 2. Latin America. 3. Ministry of Foreign Affairs, Trade and Integration.

Drafting Committee María Cristina Muñoz, Federica Zaccagnini, Gabriel Villafuerte,Juan Pablo Cadena, Andrés Williams

TranslationsEscuela Politécnica Nacional, Centro de Educación ContinuaTranslation Manager: Henry Guy. Translation Coordinators: Kristina Linberk, Whitney Kerr, Olivia Bull. Translators: Heidi Schultz,Gabriel Ludeña, Carmen Alicia Moncayo, David León.Proofreader: Heidi Schultz. Stylistic Editor: Alana Ackerman

Front Cover and Section CoversRuna - Karla Gachet e Iván Kashinsky

Graphic DesignLa Cajonera.ec - Ana Lucía Garcés

PrintingRisperGraf* The opinions published in Linea Sur express solely the perspectives of the respective authors and do not necessarily represent the official position of the Ministry of Foreign Affairs, Trade and Integration of Ecuador.

MESSAGE FROM THE MINISTER OF FOREIGN AFFAIRSRicardo Patiño

EDITORIALKintto Lucas

DOSSIER

PRESENTATION OF THE DOSSIER: ECONOMIC CRISIS AND INTEGRATIONJorge Forero

CRISIS 2.0Robin Blackburn

INTEGRATION: SOUTH AMERICA’S RESPONSE TO THE CRISIS OF THE GLOBAL ORDERRicardo Aronskind

ECONOMIC INTEGRATION: EUROPEAN RETROSPECTIVE, LATIN AMERICAN HORIZONSManuel Cerezal

NEOLIBERAL CRISIS AND THE RECONFIGURATION OF THE STATE: ECUADOR AND SOUTH AMERICAN HETERODOXY Franklin Ramírez

PROSPERITY AND ECONOMIC GROWTHFander Falconí

STRATEGIC AGENDA AND INTEGRATION

THE EX ANTE IMPACTS OF THREE TRADE AGREEMENTS ON THE ECUADORIAN ECONOMY Víctor Aguiar, Hugo Jácome and Mayra Sáenz

UNDERSTANDING CHINA: FUNDAMENTAL COMPONENTS OF A MUTUALLY BENEFICIAL AGENDAMilton Reyes

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CURRENT AFFAIRS

‘LOSING’ THE WORLD: AMERICAN DECLINE IN PERSPECTIVENoam Chomsky

AUDIOVISUAL MEDIA: INDISPENSABLE REGULATIONSSantiago Druetta

RIO+20 CONFERENCE: ECUADOR’S INNOVATIVE PROPOSALSMaría Fernanda Espinosa and Helga Serrano Narváez

INTERVIEW

THE ECONOMICS OF SUSTAINABLE DEVELOPMENT IN THE CONTEXT OF RIO+20: AN INTERVIEW WITH LORD NICHOLAS STERNCarol López and Daniel Ortega

HISTORICAL ARCHIVES OF THE MINISTRYOF FOREIGN AFFAIRS

ELOY ALFARO: LATIN AMERICANIST REVOLUTIONARYJuan J. Paz y Miño

TIMELINE OF FOREIGN AFFAIRSAndrés Naranjo–Vinueza

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Cover fotograph: Canoe in riverRuna - Iván KashinskyRío Cayapas, Ecuador 2008

Runa–Wich means "human" in Quichua–was established in 2011 by Karla Gachet and Iván Kashinsky. Their intimate images are a window into the lives of their subjects. Gachet and Kashinsky have worked in various countries around the world, especially in South America, and their photographs have been published in journals such as National Geographic, Smithso-nian and Geo. Their latest book, Historias mínimas, is the product of their travels through five countries in South America. Fellow Ecuadorian photographer Mijail Vallejo recently joined ther collective.www.runaphotos.com

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CONTRIBUTORS

Víctor Aguiar | M.A. in Development Economics, FLACSO Ecuador. M.A. in International Economics, Université Pierre-Mendès-France at Grenoble. He is currently an associate research professor at FLACSO Ecuador.

Ricardo Aronskind | Economist. M.A. in International Relations, Universidad Nacional de General Sarmiento-Universidad de Buenos Aires. He is a member of the Interdisciplinary Program for the Monitoring of the Crisis of the Global Order at UNGS.

Robin Blackburn | Historian at Oxford University. He formed part of the Inter-national Marxist Group and is professor at the New School in New York and at Essex University in the United Kingdom. He was editor of the New Left Review from 1981 to 1999.

Manuel Cerezal | M.A. in Economic and Commercial Sciences, ESSEC, France. Research professor at the Center for Studies in Political Economy at the Uni-versidad Bolivariana de Venezuela. He has been an advisor to projects such as the New Regional Financial Architecture, Sucre, and Bank of the South, and has published various articles on payment systems.

Noam Chomsky | Theorist and activist. Professor of linguistics at the Massa-chusetts Institute of Technology. In addition to significant experience in this field, he has become the most prominent critic of U.S. foreign policy and of neoliberal hegemony. He is one of the most prolific and renowned intellectuals today.

Santiago Druetta | M.A. in Social Science and B.A. in Social Communication from the Universidad Nacional de Córdoba. Professor of Political Economy of the Media at the Universidad Nacional de Villa María in Argentina. He is part of the Research Center at the School of Philosophy and Humanities of the Universidad Nacional de Córdoba.

Fander Falconí | Current National Secretariat of Planning and Development in Ecuador. He has an M.A. and a Ph.D. in ecological economics. In 2011 he carried out a post-doctoral research project at the Institute of Social Studies in The Hague.

María Fernanda Espinosa | Ph.D. (c) in Environmental Geography from Rutgers University, New Jersey. She was Ecuador’s ambassador to the United Nations in New York in 2008 and Minister of Foreign Affairs, Trade and Integration in 2007. She is currently Coordinating Minister of Natural and Cultural Heritage.

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Hugo Jácome | Ph.D. (c) in Economics, Universidade de Santiago de Compos-tela. Research professor in the Economics Department at FLACSO Ecuador. Coordinator of the Center for Economic Research and Small and Medium Enterprises at FLACSO Ecuador. He has published various articles on inter-national trade and its impacts.

Carol López | Internationalist sociologist. M.A. in International Relations and Diplomacy from the Instituto de Altos Estudios Nacionales, Ecuador. She is a political analyst of geopolitics and climate change for the Ministry of Foreign Affairs, Trade and Integration of Ecuador.

Daniel Ortega | Ph.D in Public Policy and Administration from Ohio State Uni-versity. Director of Environment and Climate Change at the Ministry of For-eign Affairs, Trade and Integration of Ecuador.

Juan Paz y Miño | Ph.D. in History. Vice-president of the Association of Latin American and Caribbean Historians (ADHILAC). Professor at the Univer-sidad Central of Ecuador. Designated Chronicler of the City of Quito by the Municipal Council.

Franklin Ramírez | Ph.D. (c) in Political Sociology, Université de Paris 8 and Universidad Complutense de Madrid. Professor at FLACSO Ecuador. His re-search revolves around participatory democracy and institutional design, col-lective action and social movements, democracy and political change. He has conducted research in Ecuador, Colombia, and Bolivia.

Milton Reyes | Ph.D. from the School of International Studies at Renmin Uni-versity of China. M.A. in Latin American Studies with a specialization in International Relations from the Universidad Andina Simón Bolívar in Quito. He is a research professor at the School of Strategic Studies and Security at the Instituto de Altos Estudios Nacionales, Ecuador, as well as the coordinator of the Pacific Asian Studies program at this institute.

Mayra Sáenz | M.A. in Development Economics from FLACSO Ecuador. Cur-rently, she is an affiliated research professor at FLACSO Ecuador.

Helga Serrano Narváez | Advisor to the Ministry of Coordination for Natural and Cultural Heritage in the area of international negotiations on climate change and sustainable development. She has an M.A. in Communications from the Universidad Andina Simón Bolívar, advanced studies in Development and Communications, and a B.A. in Communication Sciences from the Universi-dad Central of Ecuador.

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MESSAGE FROM THE MINISTER OF FOREIGN AFFAIRSI

Yet again, we are compelled to look and act before the international commu-nity in a politically incorrect manner. Yet again, we must explain why our country is making a sovereign decision about whether or not to participate in a supposedly multilateral meeting. People do not yet understand that our new foreign policy agenda involves abandoning the obsolete protocol of pleasing others for the sake of simulating a “seamless” regional alliance, and adopting a strategy guided by a profound understanding of our region’s complex history and the current state of geopolitical affairs.

It has been easy for critics, mostly former ambassadors and local media pun-dits, to condemn President Rafael Correa’s decision to not attend the VI Sum-mit of the Americas as an act of protest against the exclusion of Cuba, char-acterizing it as an “ideological” and unpragmatic course of action that clashes with the supposed “new vision of American integration.” These criticisms are based on the misguided, but widely shared assumption that diplomacy is a tool for doing business. In fact, these relationships are posed as diplomatic, disguising the fact that the alleged “new vision” for integration favors North American unilateralism to the detriment of a democratic multilateral project, and reinforces our region’s historic submission to the North (which can be described as deeply ideological).

At the V Summit in Trinidad and Tobago, the majority of participating coun-tries expressed their support for ending the embargo against our sister Repub-lic of Cuba. The recently implemented Obama administration ignored our call, clearly demonstrating the rules of the game, which are not unlike those that guide the United Nations. This time, far from endorsing protocol, Ec-uador protested against the alleged protection of our region and “vetoed the hegemonic powers, an intolerable situation in our twenty-first century Ameri-ca,” as stated in the letter President Correa sent to his Colombian counterpart, Juan Manuel Santos, to inform him that we would not be attending the VI Summit in Cartagena.

In the same sense, Ecuador’s recent experience with the Inter-American Commission on Human Rights was an opportunity to review the role of this organization and unveil its close relations with media networks in the region. Subsequently, our government has called attention to the behavior of the Organization of American States, noting that they have preferred to align themselves with the interests of economic and political pressure groups, to

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the detriment of the common people. And, if the political inclinations of the Summit of the Americas bear a similar approach, we can well believe that its role in hemispheric relations has not been tuned to the new political times in our countries.

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Our decisions—“politically incorrect” according to traditional centers of pow-er—are based on the fundamental objective of encouraging authentic geo-political integration based on Simon Bolivar’s dream. To achieve this, we must denounce any attempt to resurrect the Monroe Doctrine, imbued and expressed in various ways in multiple regional organizations at different mo-ments in time. Those who stubbornly defend international “Americanist” in-stitutions ignore the United States’ political and economic control over these institutions, and attempt to conceal the “Monroe” philosophy in their decla-rations of principles. Once we recognize this, we can understand certain re-actions expressed in this country and abroad regarding Ecuador’s decision to not participate in the Summit. Attacks on Cuba, sarcastic discourse about the importance of our country in the American context, the practical supremacy of U.S. President Barack Obama, and talk of Ecuador’s hypothetical isolation are just examples of the newest version of “Latin American Monroism.”

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The 30th anniversary of the Falklands War recently passed. President Cristina Fernández has stated that it is unacceptable that a colonial enclave persists on our continent in the twenty-first century. In 1982, the devastating dictatorship in Argentina sought to “vindicate itself” in the wake of the public’s rejection of its undeniable brutal repression and the neoliberal onslaught, creating the image of an act of sovereignty against British forces. The attitude that the U.S. assumed clashed with the original spirit of the Monroe Doctrine: They chose not to stand by their dearly-held premise, “America for the Americans.” The reason was clear: The Faulkland Islands were not a North American prob-lem. Ecuador considers that the time to act has arrived. We must extinguish colonial vestiges. When President Rafael Correa defended his decision to not participate in the VI Summit, the Faulklands were part of his argument. Latin American geopolitical norms must take into account these details that are omitted from the public agenda. Cuba and the Faulklands are part of the Americas.

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The government of the Citizens’ Revolution has been clear in defining the objective that Latin American countries should aspire towards: to fight for our second independence. This requires a political platform based on greater mutual support and consensus. The goodwill of President Juan Manuel Santos

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Message from the Minister of Foreign Affairs | Línea Sur

in his renewal of our invitation to attend the Summit in Cartagena is not suffi-cient. We must break with protocol that manipulates—or immobilizes—inter-national relations outside of the OAS and their pawns. We firmly believe that heads of state, as well as the citizens of Ecuador, have evaluated our absence without prejudice and have based their opinions on the concrete results of the VI Summit. Two countries vetoed a guest, ignoring the majority consensus: It was no surprise that these same countries would also veto the results of the discussions held during the summit. What is clear is that the sovereign and moral position of Ecuador has prevailed. Our absence and the issues sur-rounding it were the main focus of the meeting. Despite some “analysts’” dark premonitions of isolation, Ecuador was more present than ever. As the Vene-zuelan Foreign Minister Nicolás Maduro expressed at the end of the summit, “From ‘Washington Consensus,’ to consensus without Washington.”

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What is certainly undeniable is the hypocrisy surrounding the procedures and the reach of this so-called “inter-American” sphere. While good wish-es and general optimism predominate in the current discourse, inequality, low quality of life, poor provisioning of essential services, and insufficient fulfillment of basic rights are tolerated on a daily basis. From the liberal in-tegrationist perspective, the economic model in crisis is not questioned, but rather “adjusted” based on econometric calculations and contrivances. Yet, if our integration process continues to be based on trade liberalization, we risk repeating the mistakes of the Eurozone, which is currently in crisis. We must use that crisis as a lesson and recognize the role that international organiza-tions played in our countries during the era of the International Monetary Fund’s impositions of structural adjustment and the “reduction of the State.” We must learn from the unfortunate collapse of the welfare state, which was unable to withstand the new stage of financial capitalism, and which was not defended by regulatory organizations.

It is clear to us that breaking with a paradigm of international relations based on certain regions’ subordination to transnational capital is a prerequisite for the reconfiguration of economic integration in Latin America. But this will not be possible if we continue to be subjected to Monroism, to the invisible hand of the market, to ultra-liberal discourse, and to summits that evade the region’s core issues. Breaking with tradition also involves discussing political positions and decisions with our allies. Today we decided not to attend the summit. Tomorrow, perhaps another country will choose to do the same. We need to fairly assess the political importance of these types of decisions, re-gardless of the particularities of each situation. The Americas (both member countries of ALBA and those that don’t belong to this alliance) deserve to have their leaders think and act together as a whole. That is the lesson we must draw from this episode.

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While it is true that democracy has established itself as the only legitimate political model, despite its shortcomings in moderating the control wielded by power groups (in any country), it is no less true that some groups also manipulate democracy for their own benefit. Procedural democracy does not guarantee integration processes oriented towards the benefit of the people. However, it is feasible to recover the notion of democracy from individual countries towards the integrationist organizations, and subsequently recon-figure political and economic strategies in the short, medium, and long term using political consensus as a tool.

It is not an easy task, but we believe that, by questioning certain “absolute truths” about international relations that have not proven favorable for South America, we can begin to fulfill our historic mission of contributing to the unity of our people without adhering to “politically correct” discourse.

Línea Sur is dedicated to the careful and critical observation of new geo-political scenarios and the detailed analysis of current regional and global affairs. The favorable reception that the first issue enjoyed has prompted us to prepare this second edition with the goal of improving quality and ana-lytical depth. We hope that the observations contained within will help us better understand the urgency of political and economic integration without reproducing dependency relationships and with a firm commitment to build-ing our common future.

Ricardo Patiño ArocaMinister of Foreign Affairs, Trade and Integration of Ecuador

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EDITORIALKintto Lucas

In the early 1970s, we had good reason to be optimistic in Latin America. Throughout the Great Homeland, the winds of change blew, and, as if a giant had awakened, thousands of people throughout all the countries of our conti-nent fought to put an end to imperialism and our declining oligarchies—the major obstacles to the consolidation of our utopia. We had tangible evidence that a revolution was possible: In the Southern Cone, Allende’s Chile glowed, proving that democracy was a feasible path for building a just society.

But capitalist domination, which had already lost the small island of Cuba, was not willing to allow Latin American nations to choose their own paths over its own interests, nor to build a democracy that would serve their peo-ples—marginalized and exploited throughout the centuries. Then, with an un-stoppable fury, the repressive regimes fell upon us, as state and governmental forces exterminated the utopia, from Ushuaia to Sonora. Hundreds and even thousands of dreamers of the best human qualities were tortured, killed, dis-appeared, and exiled during the following decades in an attempt to extinguish our desire for independence and social justice.

There is something about a people that will not accept defeat, in spite of the repeated blows and prolonged repression. These people are strategists: “Free-dom is not begged for, as though it were a favor; it is conquered,” said Eloy Alfaro. Amid the consolidation of the new neocolonial project called neolib-eralism, the voices of resistance emerged once again on our continent. When they wanted to convince us that the utopia had disappeared, it appeared anew in this devastated corner of the globe. Roads and streets were once again filled with protesters from around the continent who resumed the historical project of defending the Great Homeland.

Over the past 15 years, we have retaken control of our destiny and, even in the midst of doubt and contradictions, we have begun to mold our dream into reality. An important moment in this new phase was the drafting of the Con-stitution of Ecuador, to which I was able to make a contribution, and in which many of the persisting demands from the long historical struggle for a fairer country and a fairer Latin America were finally realized.

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But we now find ourselves at a critical juncture. The time has come to consol-idate dreams fostered for decades, even centuries. The course of history has left us an enormous challenge that transcends our regional situation. It is no longer only about achieving material development that will enable us to meet the needs of our peoples (although this goal remains relevant). Now, we also face the challenge of satisfying the needs of future generations, a common challenge that transcends borders.

In his Jamaica Letter, Simón Bolívar said: “The United States seems to be destined by providence to plague all of the Americas with hunger and misery in the name of freedom”—and in name of “the free market,” I would add. It is no exaggeration to say that the liberalization of trade in our countries was written with blood, with the explicit backing of state institutions: ours and those of the empire. The sad role that the United States has played in our history confirms the historical wisdom of the Liberator. And just when the resistance movements in our countries were in the process of opening the way for a new utopia, the United States endeavored to launch a defining attack, deploying its political influence in an attempt to incorporate us into the Free Trade Area of the Americas (FTAA). Shoulder to shoulder, social organizations and progressive governments resisted this onslaught. The case of Mexico clearly illustrates what happens under these types of agreements: the destruction of the productive sector, continued dependence on the prima-ry sector, the destruction of nature, the eradication of small-scale farming, mass emigration, the appropriation of traditional knowledge, the destruction of cultures, the abandonment of food sovereignty, and insecure labor condi-tions in all its forms. In countries seeking alternative projects, this threat has not disappeared: After the FTAA was defeated, other free trade projects of various denominations emerged.

The Constitution of Montecristi, which was approved by an overwhelming majority in 2008, contains articles that oppose such agreements. Considering our current juncture, we must follow a path of endogenous development and protect our resources, our production, our lands, and our collective heritage. But we cannot do it alone. We should recall José Martí’s invitation: “Nations that do not know one another should quickly become acquainted, as men who are to fight a common enemy….The trees must form ranks to keep the giant with seven-league boots from passing! It is the time of mobilization, of march-ing together, and we must go forward in close ranks, like silver in the veins of the Andes.” Indeed, the consolidation of alternative social and political proj-ects will be possible only through a decisive and revolutionary step forward in our quest for integration.

There are many interests pushing for these initiatives to fail. Power groups lobby for an exclusive model of production that leaves out peasants, indig-enous people, and small- and medium-sized producers, and that defends only a handful of exporters and importers, attempting to impose a model

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that contends the consolidation of the Great Homeland, favoring private interests and free trade agreements (FTA) that prevent integration and create dependency.

In this process of the restructuring of the balance of power, it is essential to strengthen revolutionary relationships among our countries and our peoples. This is no easy task, but we are heading in the right direction. This is what is happening today with the bilateral relationships between many countries of “Our America,” with cooperative relations within ALBA (the Bolivarian Alliance for the Peoples of Our America), and other integration processes. Though there is a long road ahead, and the established powers continue to attack these processes of unity, today, more than ever, it is necessary to ad-vance towards the full integration of Latin America, a strategic objective to achieve National Liberation.

The negotiation and signing of FTAs with the United States and the European Union by some Andean nations was a mortal blow to the Andean Community of Nations, whose functions will decline over time at the same rate as the eco-nomic sovereignty of these nations. We should aim, then, for new integration proposals involving our people if we want to consolidate the alternative pro-cesses that inspire our struggle. We must consolidate ALBA, Unasur (Union of South American Nations), and Celac (Community of Latin American and Caribbean States), and aspire towards a South American Mercosur. Only then will we find the material bases, the political force, and the symbolic elements we require for this transformation. As stated by Ricardo Aronskind, one of the collaborators in this issue of Línea Sur, “the current name of our inde-pendence is integration.” We have a historic obligation to transfer the Latin American fraternity that beats in our hearts into the realm of politics and in-ternational relations.

This issue of Línea Sur centers on these concerns and their current context. We hope to contribute to the construction of the ideal of “Our America” with solid arguments and innovative proposals. Like José Martí, we also recognize that in the end, “trenches of ideas are worth more than trenches of stone.”

Editorial | Línea Sur

16Runa - Karla Gachet La Vega Central, Santiago de Chile 2009

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PRESENTATION OF THE DOSSIER: ECONOMIC CRISIS AND INTEGRATIONJorge Forero

On November 2, 2011, a group of Harvard University students decided to walk out of their Introduction to Economics class, as a protest against the “moral and economic corruption of the academic world,” which they interpreted as an accomplice of the perpetrators—and beneficiaries—of the economic collapse of 2008. Similar protests followed in universities across the U.S. and Europe, which contributed to solidifying the event as a symbolic emblem, and with good reason. The professor of the Harvard course was Gregory Mankiw, au-thor of one of the most popular textbooks on macroeconomics and a former adviser to the Bush administration, a true representative of the neoliberal in-telligentsia that over the past thirty years has maintained hegemony over the field of economics (“Los estudiantes de Harvard,” December 4, 2011). The fact that the protest was directed not only at the course’s limited theoretical content for interpreting social reality, but also at the ethically questionable behavior of the academic field in general, reflects the tremendous impact that the latest economic crisis has had on the realm of ideology.

In fact, the crisis came as a surprise only to proponents of laissez faire theory, who saw the most important of their conceptual premises break down before their very eyes. As David Harvey points out, their failure to anticipate the crisis is the result of their own theoretical framework, completely incapable of understanding systemic risk (Harvey, 2010). Critical political economists, on the other hand, had been discussing the imminence of the crisis and some of its causes for a while.1 What is important to emphasize here is that the inabil-ity to apprehend economic dynamics becomes an extreme limitation when it comes to guiding public policy, and even more so when, in the midst of crisis, these advisors unanimously recommended government intervention to save large financial institutions. This “solution” reveals a class bias that will hence-forth act as a self-inflicting curse, but the perception of this ruse jeopardizes its operation. (According to Zizek [2008], the invisibility of the mechanisms that give form to an ideology is sine qua non for its application.) The para-digm has thus entered a crisis of legitimacy, and, to use the words of Gopal Balakrishnan (2009), “In this dilapidated state, neo-liberalism’s former pre-tensions to intellectual superiority and realism will no longer be sufferable.” However, this should not lead us to declare victory prematurely. In the midst of crisis, the financial bourgeoisie showed its power as never before in history,

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bending the political system at the center of the world economy—the system that harbors the remnants of the Keynesian project. Threatening to downgrade sovereign debt ratings, agencies like Fitch, Moody’s, and Standard & Poor’s forced Obama to accept potential budget cuts in health programs (Hudson, August 7, 2011)2 and forced the implementation of vast structural adjustment in the weakest countries of the European Union. The measures deployed have triggered one of the most interesting cycles of collective action in recent years—a cycle that made systemic transformation seem close at hand, almost tangible, if only for a moment.

However, the immediacy of the moment often magnifies events, creating the illusion of grandeur that history—dismissive by nature—denies them. The discreet dismantling of the “Occupy” camps in different parts of the U.S. and the gradual retraction of the Indignados movement in Spain remind us once again that the buds of spring are a seasonal affair and not a permanent instal-lation. If, however, we place these events in their historical context, we may well be able to perceive them more clearly.

There are important lines of continuity between the protests that spread throughout Europe and the U.S. starting with the crisis of 2008, and those that swept all over the world during the two preceding decades that formed part of the “alter-globalization movement.” The protesting groups on both sides of the Atlantic today incorporate and build upon the experiences that charac-terized the “anti-summit mobilizations,” which inundated the G-8 and WTO summits since the mid-1990s.3 We can even trace the roots of these events to Latin America, where the uprising by the Zapatista Army of National Liber-ation (EZLN) in Chiapas set the course for subsequent mobilizations. Indeed, the articulation between the center and the periphery was constituted by the Second Intercontinental Encounter for Humanity and Against Neoliberal-ism, organized by the EZLN and held in Madrid, where a powerful network emerged under the concept of “transnational civil society,” giving way to the aforementioned mobilizations (Iglesias, 2005). The Zapatista movement was, of course, the most notorious example of Latin American mobilizations of the time, although the indigenous uprisings in Ecuador could be considered an equally important predecessor.4

The Zapatista movement, the piquetero protests in Argentina, the Water War in Cochabamba,5 the Indignados Movement in Spain, the presidential oust-ings in Ecuador, the anti-summit protests, and the riots in Greece have all been specific reactions to different phenomena, including trade liberalization, privatization, and economic crises resulting from foreign debt and financial deregulation. All of these phenomena, however, are manifestations of neolib-eralism, the type of capitalism that has prevailed globally since the 1960s and that intensified in the 1990s. Moreover, a large percentage of these protests are reactions to the dynamics of one of the most important elements of neoliberal-ism: “accumulation by dispossession” (Harvey, 2003),6 that is, appropriation

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by the private sector of public or community property, including the forced expropriation of land and resources from indigenous peoples and the mas-sive privatization processes imposed on states with large public deficits. The fact that this long cycle of accumulation by dispossession began in peripheral countries has given Latin America an early taste of the policy packages now being imposed on Greece and Spain, to mention only the most obvious cases. We see here an inversion of the Marxist formula: “The country that is more developed industrially only shows, to the less developed, the image of its own future” (Marx, 2007).

The first great cycle of accumulation by dispossession, which began in Latin America with the Pinochet coup, had two specific effects on the region. First, the implementation of International Monetary Fund (IMF) policy packages, very similar to those now looming in Greece’s future, led to a series of demon-strations protesting the withdrawal of the state, particularly in the economic realm, which, in many cases, led to traumatic devaluations of national curren-cies and the seizure of the savings of the working class, experiences that are difficult to erase from collective memory. This has led civil societies in several countries to recognize the need for state intervention in the economy and the nationalization of key economic sectors that greatly affect society as a whole. The second effect has been the major upheaval of the “traditional political class”: the parties that embraced and implemented the neoliberal project and that controlled the national political system throughout the twentieth century. The slogan “throw them all out” resonated during the 2001 demonstrations in Argentina, the May 15 protests in Spain, the denouncement of partidocracia (exclusive party government) in Ecuador—catapulting Rafael Correa to pow-er—and the empowerment dynamics that led to the historic election of the first indigenous president in the Palacio Quemado in Bolivia.

It was precisely this juncture that led to a revival of the left in Latin America, provoking a radical reconfiguration of the political map both nationally and regionally. Where they have been implemented, progressive governments have faced the challenge of constructing new state projects within a capitalist world capable of responding to social demands that have been historically repressed since the beginning of republicanism, as well as those that have emerged during the decades of social mobilization that led to the rise of progressive government. Never before has a peripheral region produced so many propos-als for political and institutional reform as Latin America has during the past fifteen years. These proposals are reminiscent of the revolutions of the 18th Brumaire, which, having no previous examples on which to base themselves, “criticize themselves constantly, interrupt themselves continually in their own course, come back to the apparently accomplished in order to begin it afresh...until a situation has been created which makes all turning back impossible, and the conditions themselves cry out: Hic Rhodus, hic salta!” (Marx, 1968).

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Despite the substantial differences between leftist projects developing in Ven-ezuela, Bolivia, Argentina, and Ecuador (simply to point out the most visi-ble examples), and despite the frequent confrontations between their govern-ments, other leftist groups, and the complex political structure that sustains them, they all have two things in common: First, they see the consolidation of regional integration as essential for achieving their national goals, and second, they have prompted a return of the state to important sectors of social life. The return of the state has led to substantial improvements not only in growth rates, but also in human development indicators, poverty reduction, and em-ployment, even amid a global economic crisis.

In this context, there are certain questions that require answers: If certain Lat-in American governments have successfully challenged the neoliberal project, impeding and counteracting “structural adjustment” processes imposed by multilateral agencies, can European progressive sectors learn some lessons from the paths we have taken? Can regional integration processes help miti-gate the impact of the global economic crisis? Furthermore, considering that the Eurozone is facing a crisis that threatens its very existence, can we learn from the European experience for our own integration processes? These are some of the central questions that this second edition of Línea Sur, “Economic Crisis and Integration,” attempts to answer.

In our first article, Robin Blackburn explores the measures employed by the U.S. and Europe to address what he calls “Crisis 2.0,” as well as the impacts of these measures on both general economic dynamics and on the dynamic between the winners (the financial sector) and the losers (households and pen-sioners) of the crisis. After a review of the most prominent reactions to the current global recession, Blackburn focuses on Ecuador’s sovereign debt audit (which identified debts acquired without regard for citizens’ interests) and the first Kirchner administration’s sovereign debt default, both viable alterna-tives to the current situation in Greece. He then proposes a set of policies for economic reactivation through the reestablishment of public affairs, includ-ing state empowerment in the banking and credit sectors aimed at boosting production. Blackburn proposes that the reimplementation of public affairs should revolve around three central elements: regulation, redistribution, and reconstruction of a universal social security system. Among the author’s many proposals, we can find everything from the creation of a universal minimum wage to the reproduction of successful experiments in “traditional socialist models of a ‘nationalized economy.’”

After a review of the current crisis, Ricardo Aronskind’s “Integration: South America’s Response to the Crisis of the Global Order” delivers a diagnosis of its causes and characteristics, exposing the limitations of the liberal democratic project when it comes to defending the common good. He shows how this sit-uation is exacerbated in Latin America by the structural weakness of the state and by the unchecked power of interest groups. The current situation, which

Presentation of the dossier: economic crisis and integration | Jorge Forero

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he characterizes as “the disorder of order” (“order” meaning neoliberalism), appears as an opportune moment for the empowerment of Latin American states that seek to overcome their economic and political subordination. This will only be possible, he ascertains, through a “qualitative and quantitative leap” in terms of public policy, which would facilitate, among other things, the creation and consolidation of sovereign regional public institutions, capable of limiting lobbying on matters of domestic policy and promoting regional inte-gration aimed at overcoming the region’s economic dependence—its greatest weakness in the current context.

“Economic Integration: European Retrospective, Latin American Horizons” begins with an exhaustive analysis of the construction of the European Union from its origins, identifying the lessons that can be derived from this exper-iment in integration. Reviewing sectoral productivity policies, the arrange-ment of the monetary union, and the reduction of asymmetries via structural funds, Manuel Cerezal points out the need to design integration processes that prioritize production and labor policies and that explore potentially prof-itable sectors for ALBA and Mercosur, rather than restricting themselves to the topics of macroeconomic stability and trade. He describes the process of establishing the Unified System for Regional Compensation (Sucre), show-ing the relevance of proposals like the Bank of the South and the Fund of the South for building an integration process that can bring about the well-being of our peoples.

Franklin Ramírez’ “Neoliberal Crisis and the Reconfiguration of the State: Ecuador and South American Heterodoxy” seeks to grasp the specificities of progressive Latin American governments, identifying the nature and the lim-itations of the current transnational political juncture. Ramírez shows how the neoliberal power structure, and especially the global financial system, has remained intact despite the turmoil reflected in the demonstrations in the U.S. and Europe. He proposes that leftist governments in Latin America are processes that aim to counter what he calls the “subordinate integration” of Latin American states. Considering the case of Ecuador from 2007 to 2011, he characterizes the “post-neoliberal” project as the dismantling of the “hard nucleus” of the neoliberal project. This involves reclaiming the state’s role in important sectors that represent collective interests. He details three elements that he considers essential for the continuation of the post-neoliberal project: to be: the consolidation of state autonomy, the development of integration processes, and the encouragement of social movements.

Finally, in “Prosperity without Growth,” Fander Falconí poses the current challenge facing the global economy: how to overcome the economic crisis without deepening the ecological crisis. Returning to the concept of “social metabolism,” he points out that the environment suffers negative consequenc-es when it is closely tied to economic activities. This close articulation gener-ates environmental liabilities that always fall hardest on the poor. He proposes

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that economic recovery should be based on protection activities and social services that not only have no negative impacts on the environment, but also directly improve people’s quality of life.

Thus, the articles in this dossier propose a dialogue between the center and the periphery regarding a common challenge that can be surmounted through a type of global coordination radically different from the outdated and undem-ocratic multilateral system inherited from the post-war period. The articles contained herein respond to the challenge that, according to Zizek, is imposed by the current situation: “More than ever, the reply to every crisis should be more internationalist and universalist than the universality of global capital” (Zizek, 2010).

Footnotes

Presentation of the dossier: economic crisis and integration | Jorge Forero

1. The most obvious example is the work of Robert Brenner (2002), The boom and the bubble.2. The Republican budget cuts in the midst of the controversy over increasing the debt-ceiling did not prevent rating agencies from lowering the U.S. rating to AA+.3. The first of the “anti-summit mobilizations” was the protest in Seattle against the WTO summit, followed by that in Genoa against the G-8 summit.4. The first indigenous uprising occurred in June 1990. By 1994, the movement explicitly rejected neoliberalism and the impact of this economic doctrine on the ag-ricultural sector (Espinosa, 2009). 5. The Water War refers to the protests that started in January 2000, in Cochabamba due to water privatization and subsequent increases in the cost of this resource.6. David Harvey (2003) coined the term, “accumulation by dispossession,” an updat-ed version of Marx’s concept of “primitive accumulation.”

References

Balakrishnan, G. (2009, September-October). Speculations on the stationary state. New Left Review 59:19.Brenner, R. (2002). The boom and the bubble. New York: Verso.Espinosa, C. (2009). Historia del Ecuador en contexto regional y global. Barcelona: Editorial Lexus.Harvey, D. (2010). RSA animate: Crises of capitalism [Video]. Retrieved April 3, 2011 from http://www.youtube.com/watch?v=qOP2V_np2c0Harvey, D. (2003). The new imperialism. Oxford: Oxford University Press.Hudson, M. (2011, August 7). Deuda y guerra. Retrieved March 23, 2012 from http://www.sinpermiso.info/textos/index.php?id=4358Iglesias, P. (2005). Un nuevo poder en las calles. Repertorios de acción colectiva del movimiento global en Europa. De Seattle a Madrid. Política y Sociedad 42(2), 63-93.Marx, K. (1968). The Eighteenth Brumaire of Louis Bonaparte. In K. Marx & F. En-gels, Selected works (pp. 95-180). Soviet Union: Progress Publishers.Marx, K. (2007). Capital: A critique of political economy. Vol. 1-Part 1, The process of capitalist production. New York: Cosimo.

http://eltelegrafo.com.ec/index.php?option=com_zoo&task=item&item_id=22659&Itemid=2

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Los estudiantes de Harvard se rebelan contra la doble moral de sus maestros. (2011, December 4). El Telégrafo. Retrieved March 23, 2012 from http://eltelegrafo.com.ec/index.php?option=com_zoo&task=item&item_id=22659&Itemid=2Zizek, S. (2008). El espectro de la ideología. In S. Zizek (Comp.), Ideología: Un mapa de la cuestión (pp. 7-42). Buenos Aires: Fondo de Cultura Económica.Zizek, S. (2010, July-August). A permanent economic emergency. New Left Review 64, 85-95.



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It is now clear that what began as the Great Credit Crunch of 2007 has de-veloped into a contraction of wider scope and great tenacity, centered in the main OECD countries. Governments acted to avert collapse, but in doing so themselves became a target. Bail-out measures adopted during the early phase of the crisis between 2007 and 2009 saw the U.S., the U.K., and eurozone authorities increase public indebtedness by 20% to 40% of GDP, with large current-account deficits. The transfer of debt from private to public hands was carried out in the name of averting systemic failure, but in some ways it aggra-vated the debt problem since bank failure, however disruptive, is actually less devastating than state failure. Before long, the bond markets were demanding plans to cut these deficits by slashing public spending and shrinking social protection. The center left and the center right were already persuaded that the welfare state was too expensive and bureaucratic, and needed to be downsized and handed over to private suppliers. Public services and institutions were leveraged by means of commercial debt, at the expense of future revenues and the intelligibility of the public accounts. Determined not to waste a good crisis, neoliberal policymakers and commentators seized on the disarray to further advance such schemes. Japan, the U.S., and the U.K. are heavily water-logged, but their control over their own currency allows them to print money and to devalue. Such expedients have been denied the eurozone states so far. However, the more fortunately placed countries are still highly vulnerable to euroland’s miseries because they are invested in its assets and count on it as a trading partner.

The governments of the U.S. and the eurozone do not face exactly the same problems but are seemingly paralyzed, stumbling from one palliative to the next. The weaker eurozone countries have austerity imposed upon them while the stronger states proclaim the need to liquidate deficits even though a chorus of eminent economic analysts—from Martin Wolf to Paul Krugman, Wolf-gang Münchau to Nouriel Roubini—insists that austerity will only hamper recovery. No case more fully bears out their warning than the U.K., since its government has voluntarily used its margin of autonomy to commit to a thor-oughly counter-productive retrenchment.

CRISIS 2.0*Robin Blackburn

* Published in New Left Review 72 (November-December 2011)

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While governments and international organizations wrestle with the crisis, they seem to find it impossible to act on the scale such a momentous contraction requires. Public opinion has turned against the bankers but governments are still in thrall to bond markets that demand cuts in social protection and a fur-ther boost to the privatization and commodification of pensions, health, and education. Social protection is being dismantled as employees, young and old, are thrown on the scrap heap. The jobless face misery, those still employed are ‘nudged’—if not shoved—into the arms of expensive private suppliers. As more countries commit to austerity they help to aggravate the Great Re-cession, drive their citizens toward commercial suppliers, and strengthen the grip of a new regime of finance capital. But commodification and private fi-nance are beset by inherent limits and obstacles. Private finance, no matter how skillfully leveraged, lacks the scale needed to overcome the contraction. Commercial suppliers of pensions and other social protection are plagued by insecurity, marketing costs and a logic that encourages them to discriminate against women and minorities. At an even more fundamental level, the web has weakened ‘intellectual property’ rights, sapped the commercial media, and broken the music industry. The sequencing of the human genome and the deployment of nanotechnology have likewise resisted commodification. The colonization of cyberspace by capital—for example through Facebook’s intimate commodification—is, as yet, on too small a scale to compensate for these blockages.

As the crisis deepens, constructive proposals for a genuine exit from it to the left will be ever more urgently needed. In what follows, I discuss some of the alternative policies that have been proposed within the existing system, and set out some more radical—transitional—perspectives for the longer term. First-ly, however, I will look in more detail at some of the ‘rescue measures’ applied so far and give an account of the multiplying woes of the Crisis 2.0 world, in which governments, households, and financial concerns are all seeking to un-wind their debts, or ‘de-leverage’. The result has been stagnation, unemploy-ment, the destruction of welfare, and the installation of technocratic coalitions bereft of an electoral mandate. I argue that effective resistance strategies will need to address the underlying causes of the crisis—global over-capacity, de-ficient demand, and anarchic credit creation. I urge a broad-based expansion of aggregate global demand based on higher wages in low-wage countries, debt relief in poor and richer countries, new schemes of social protection, and a financial architecture geared to public utility.

A Self-Perpetuating Crisis

The current travails of the OECD economies are a product of trends strongly promoted by neoliberalism and globalization—extreme inequality, poverty, financial deregulation, privatization, and a pervasive commodification of the life course, via mortgages, credit- card debt, student fees, and private pensions. Low wages in emerging economies, and growing indebtedness in the richer countries, created mounting trade imbalances. Together with the deregulation of financial markets, this generated a succession of asset bubbles. The invest-ment banks and hedge funds further expanded credit through the creation of

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Crisis 2.0 | Robin Blackburn

new types of derivative valued at ‘model prices’ and sold ‘over the counter’ to institutional investors, thus giving rise to an off-balance-sheet ‘shadow bank-ing system’ which soon dwarfed the formal, regulated exchanges. The banks’ heedless pursuit of short-term advantage led to the largest destruction of value in world history during the Crash of 2008. Government rescue measures were to offer unlimited liquidity to the financial sector, while leaving the system largely intact.

Rescuing Wall Street

October 2008 saw the apparent assertion of government discipline over Amer-ica’s nine largest banks. Their CEOs were summoned to Washington by Hank Paulson, the Treasury Secretary, who informed them that they faced bank-ruptcy unless they accepted government recapitalization. In less than an hour, all had signed a letter Paulson had prepared, offering the Federal authorities equity stakes in their concerns in exchange for injections of new capital from the just-established $700 billion ‘Troubled Asset Relief Program’. Goldman Sachs changed its legal status to a bank holding company in order to qualify for TARP funds. The government acquired a majority holding in Citibank, the largest bank on Wall Street. At the moment of greatest danger all the banks undertook to abide by certain rules. These measures followed a state takeover of AIG, the world’s biggest insurance company, and of Fannie Mae and Fred-die Mac, the two largest mortgage brokers. For its part, the British government had been forced to rescue first Northern Rock, then Lloyds TSB group and the Royal Bank of Scotland. Barclays and HSBC did their utmost to avoid becom-ing entangled in rescue operations, but were nevertheless obliged to accept help from the U.S. TARP.

At no point, however, did the Treasury use its position as owner and creditor to impose on the financial companies that it had saved lending policies that would benefit the broader economy. The Dodd–Frank Act, signed with great fanfare by Obama in July 2010, contained a ratio of law to loophole of 13:87, according to one analysis (Prins, 2011, p. xi). Strange to relate, both Wall Street and the City of London emerged essentially unscathed from legislators’ attempts to rein them in; ‘too big to fail’ banks, outrageous bonuses, perverse incentives, slender capitalization, obscure accounting rules, off-balance-sheet items, and special-purpose entities remained untouched. The rescued banks declined to resume normal lending to small- and medium-sized businesses, ensuring a lingering ‘credit crunch’. The Treasury and the Fed were unhappy but gave no marching orders. The banks, keenly aware of one another’s prob-lems—they were still sheltering huge unacknowledged losses—also shunned inter-bank lending. All had invested in a range of very dubious assets, not just sub-prime mortgage and other credit derivatives, but also vulnerable corporate and public bonds, not least those issued by weaker members of the eurozone.

Only the imminent prospect of the collapse of the U.S. financial system—a ‘near-death experience’—had allowed for such an extraordinary use of the public purse. Congress had been reluctant to endorse TARP—the Emergency

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Stabilization Act that established the program was rejected when first voted on, in September 2008—and only did so when the legislation had been amended with warm words about the restraints that would apply to banks and the help that would be extended to families facing eviction. But as TARP’s ‘inspector general’ Neil Barofsky himself observed in his balance sheet of the program, little of the help filtered through to those threatened with foreclosure, whose problems were after all at the root of the sub-prime crisis:

Treasury provided the money to banks with no effective policy or effort to compel the extension of credit. There were no strings attached: no require-ment or even incentive to increase lending to home buyers, and against our strong recommendation, not even a request that banks report how they used TARP funds . . . [In February 2009] the Home Affordable Modification Program was announced with the promise to help up to four million fami-lies with mortgage modifications. That program has been a colossal failure, with far fewer permanent modifications (540,000) than modifications that have failed and been cancelled (over 800,000) . . . As the program floun-ders, foreclosures continue to mount, with 8 million to 13 million filings forecast over the program’s lifetime (Barofsky, 2011).

If a large slice of TARP funds had gone to debt forgiveness for the low-paid, it might have stimulated consumption in an economy threatened by stagnation as well as lightening the load of bad debt. Instead, plus ça change, plus c’est la même chose best describes the remarkable resilience of the basic practices of the financial sector in the years 2008–2011. Despite all the write-offs and bailouts, overall debt levels within the OECD (national debt, non-financial corporate debt, banking debt, and household debt) remained stubbornly high, at three to five times GDP (Cecchetti, 2011, p. 7, Table 1).1 Transferring debt from banks to government did not solve the problem if the government failed to commit great chunks of GDP to a massive counter-cyclical program and wide-ranging industrial policy.

The U.S. fiscal stimulus, meanwhile, was proportionately on a much smaller scale than those undertaken in the U.K., continental Europe, and China.2 The very tentative recovery of 2010 ran out of steam and a return to “stagflation” loomed. U.S. joblessness was officially tallied at 9% of the workforce, but the number looking for work was 25 million—closer to one sixth. Most employ-ees found the value of their savings slashed and, as noted above, millions were threatened with foreclosure as well as the prospect of poverty in old age. The British banks received a particularly generous bailout, being even more heav-ily compromised by toxic debt than Wall Street. Yet this generosity did not lead the large banks to attend to the modest credit needs of small and medium businesses. A study found that loan approvals had fallen from 90% to 65%, de-spite the fact that there were many fewer applications because of poor trading conditions (Allen, 2011).

The modest effect of the stimulus packages made necessary massive “quan-titative easing,” that is, the printing of money to buy banking assets. The QE undertaken by the U.S. and U.K. central banks served to boost financial-sector

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assets and profits but had only weak effects on overall demand and failed to ignite investment in the “real” economy. The U.S. Federal Reserve revealed in December 2010 that its QE program had purchased bonds to the value of $3.3 trillion from U.S. banks, using the newly minted money to pay and dramati-cally boosting bank liquidity. These institutions used this help to reduce their own indebtedness. They could then invest, at little or no risk, in public bonds or high-quality consumer debt. To get that $3.3 trillion into perspective, we might note that it is more than four times as large as the TARP, which was just the visible tip of the bank bail-out effort (Tett, 2010). The soft money lent to the banks allowed them to borrow at bargain-basement rates—1% or less—and then to place it in government bonds paying 4% or 5%, or consumer credit paying 12% to 18%. It is not surprising that the big banks once again reported huge profits and that bankers’ bonuses ballooned. Before long, however, the financial authorities in Brazil and China were complaining that “quantitative easing” in the U.S. and Europe was exporting inflation and fostering new asset bubbles in real estate in the emerging economies.

Further down the line, these sums will be hacked back from core social pro-grams. In 2010 Obama appointed a bipartisan commission to propose ways to reduce the public deficit. Some of its members suggested that Social Security benefits should be cut by raising the retirement age, weakening indexation, and other measures. In July 2011 Obama offered a “grand bargain” to the Re-publican Congressional leaders, whereby they would agree to lift the ceiling on official U.S. debt in return for $4 trillion of savings, with the program of government spending cuts to include Social Security (Calmes, 2011; Crook, 2011). While the Republicans refused this tempting concession, cuts to Social Security were no longer off-limits so far as the White House was concerned. The deal eventually reached in August 2011 committed Congress to cutting the federal budget by $2,400 billion over 10 years, but entrusted the task of specifying these cuts to a super-committee that reported its inability to reach any conclusions in November. This was the signal for new horse-trading to commence. Social Security and Medicare, the health program for older citi-zens, will be candidates for butchery. Though they will be reluctant to admit it, enough Democrats believe in “saving” these programs by cutting benefits to make a deal a possibility, despite the sharpness of factional cleavage.

Eurozone flaws

In Europe, meanwhile, banks that had also indulged in reckless lending were hit hard. Large-scale rescues were required in Iceland, Greece, Ireland, and Portugal in 2009 and 2010, with double doses and uncertain results. By 2011, Italy and Spain were next in line. Once again, banks had lent unwisely but expected to escape any of the negative consequences. The eurozone proved vulnerable, however, because the currency was not supported by a significant fiscal authority. The ECB was not established as a “lender of last resort.” The Merkel government was unwilling to permit it to print trillions of euros in “quantitative easing,” as central banks in the U.S. and U.K. had done; a stance reflecting some combination of historically rooted debt and inflation phobia,


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tough bargaining tactics, and distrust of the banks. The bail-outs required elab-orate negotiations between the various national financial authorities, each of which had special interests to defend, especially where their own banks faced a default or “haircut.” The rescues imposed drastic austerity programs on re-cipient governments, destroying pension entitlements and driving down living standards while sometimes allowing the banks to be paid in full. Attempts to expand the European Financial Stability Facility (EFSF) in the summer of 2011 did not calm fears for long—despite pledges from national governments totaling €440 billion, of which €211 billion came from Germany—because it was both cumbersome and inadequate (Peel, 2011). Each national government had to endorse the scheme and when it became clear in October that Greece would absorb most of the facility, leaving nothing for Italy with its €1.9 trillion of debt, the response was not to contribute more resources to the EFSF but instead to resort to CDO-style financial engineering, such that its cash base would be used to insure loans totaling nearly a trillion euros.

From any point of view European financial institutions had been found want-ing. Many of the eurozone’s financial titans—notably Deutsche Bank and So-ciété Générale—had taken part in the credit-derivatives orgy and have yet to admit their full exposure, whether to U.S. credit derivatives or to eurozone bonds. The plethora of default swaps in the sovereign bond markets made it harder to tackle the return of the Greek debt problem in 2011.

As the crisis ground on, eurozone officials proposed in July 2011 that a new Greek bailout should be financed by a levy on the banks. Such a tax would not count as a “credit event” or default, and would thus not trigger payouts from those holding Credit Default Swaps on Greek bonds. One report commented: ‘The plan, which advocates believe could raise €30 billion over 3 years, could help satisfy German and Dutch demands that private holders of Greek bonds contribute to a new €115 billion bailout” (Spiegel, Peel, & Wilson, 2011). (The “private holders” being, of course, the banks.) However, resistance from the banks was sufficient to block the proposal, despite the seriousness of the situation and the modesty of the proposed levy. The banks accepted only a €17 billion write-down of their bond-holdings, which they regarded as preferable to a 0.025% levy on their assets throughout the eurozone—seen as the thin end of a very undesirable wedge. The British government was prepared to allow a very modest bank levy (its banks are comparatively well capitalized), but exerted itself mightily to block a tiny Financial Transaction Tax favored by the French and Germans as a gesture to public opinion (the City and the hedge funds see the FTT as a nasty threat).

The eurozone heads of government eventually concocted a plan in late Octo-ber 2011 whereby the private holders of Greek debt would accept a “volun-tary” write-down of 50%. This was a shock to institutional investors, insurance houses, as well as pension funds, that had acquired euro-denominated bonds covered by CDS insurance as a “risk-free” asset, in conformity with their cli-ents’ mandate. While some were insured against a partial write-down, most were not. According to a Financial Times report, the terms of the write-down

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were deliberately chosen to avoid triggering compensation, infuriating inves-tors who had been counting, in the event of a default, on receiving their CDS insurance. The upshot was to cast doubt on the wider sovereign CDS market:

It is unclear how far eurozone banks have used CDS to hedge their expo-sures to eurozone debt. However, the published level of outstanding sover-eign CDS for Italy and France is more than $40bn, and the Bank for Inter-national Settlements recently suggested that U.S. banks have now extended over $500bn worth of protection to eurozone counter-parties on Italian, French, Irish, Greek, and Portuguese sovereign and corporate debt (Tett, 2011).

Institutional investors need a proportion of “risk-free” assets to balance their portfolios: could they now honestly rate Italian, Spanish, or even French bonds as “risk-free”? Many pointed out that only a proper “lender of last resort” backed by a strong economy and tax system could supply the risk-free core which a financial system requires.3 By the close of 2011, the German govern-ment seemed ready at last to back such an approach, but only at the dire cost of establishing a fiscal autocracy with an iron grip over the entire eurozone.

Pension woes

In the Crisis 2.0 maelstrom, pensioners are being hit from every side. In 2008, global retirement funds dropped by 20% in 1 week. In the U.S., a recent sur-vey found that 67% of adults aged 45–54 had less than $50,000 of savings, sufficient to buy an annuity of just $300 a month; this was up from 55% in 2007 (Employee Benefit Research Institute, 2011; and Magnus, 2009, p. 87 for 2007).4 After more than half a century of lavishing tax incentives on private pension schemes—401(k)s, IRAs, occupational schemes, and the like—it is still Social Security entitlement, averaging $1,100 a month, which saves near-ly half the U.S. elderly population from destitution. Even in the best of times, defined contribution (DC) schemes were eroded by the “cost disease” of heavy marketing, admin, and customization charges. (The Social Security Adminis-tration caters to over 150 million employees and 50 million beneficiaries, with a staff of 68,000—about the size of a single large investment bank.)

Meanwhile the defined benefits (DB) pension funds experienced an extraordi-nary roller-coaster ride across the ups and downs of QE-induced stock-market run-ups and collapses, even before the sovereign bond crisis. By the end of September 2011 Mercer, a leading pension consultancy, estimated the deficit in private, corporate U.S. DB schemes at $512 billion, close to the level noted in early 2009, when stock markets were still reeling. For its part the U.K.’s Pension Protection Fund (PPF) estimated the deficit in the corporate schemes it insured at £196 billion. An Economist report citing these figures also es-timated that the deficit in U.S. public schemes had grown by $1.3 trillion in the previous 2 years. The report also pointed out that QE was aggravating the problems faced by these funds, as any lowering of bond yields raises the accounting estimate of the cost of fulfilling future obligations to beneficiaries (“A trillion here,” 2011).


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In addition, the operational principles of DB pension funding have an unfor-tunate “pro-cyclical” impact: Faced with a recession-induced deficit, the cor-porate sponsors of the fund are required to put more money into the scheme, so at a time of weak demand the corporations are being encouraged to save, not invest. This can only further depress demand. As share values once again tumbled from August 2011, some schemes grew so mired in deficits that they menaced the very existence of the sponsors, with further dire consequences for members and beneficiaries. The U.S. Pension Benefit Guaranty Corporation (PBGC) and the U.K. PPF monitor scheme performance and furnish insurance to the members of schemes whose corporate sponsors go bust. However, the insurance supplied usually amounts to about 70% of what has been promised. In the U.S. the leading corporations in a whole series of industries—airlines, steel, automobiles, auto components—have been taken through Chapter 11 bankruptcy protection, enabling corporate rescuers (otherwise known as “vul-ture capitalists”) like Wilbur Ross to shed pension liabilities, handing them to the PBGC.5 The weak and worsening data on U.S. savings and retirement prospects showed, once again, the hollowness of Washington’s “success” in tackling the crisis.

Meanwhile the shift by many governments from public pension schemes to mandatory private provision has proved a comprehensive disaster for the coun-tries concerned. The rocky state of stock markets has meant that the promised accumulation targets have been missed by a mile. Up to the eve of the crisis, the IMF and World Bank had aggressively promoted the commercialization of pension provision, as Mitchell Orenstein has shown in his Privatizing Pen-sions.6 Between 1994 and 2008, 30 countries in Latin America and Eastern Europe were pressured to abandon their public pension systems and to replace them with personal pension funds managed by commercial finance houses. The international agencies resorted to shameless bullying, and to what Oren-stein calls “resource leverage”—countries in the midst of a difficult transition to democracy were denied all financial assistance unless they agreed to pen-sion privatization. In addition funds were made available by the World Bank to carry through campaigns of public persuasion, while key individuals were offered inducements and attractive employment if they went along with the process.

In 2008 newly established pension funds in Poland lost 17% of their value, in Bulgaria 26%, in Slovakia 12%, and in Estonia, value fell by 32% in one fund, 24% in another, and 8% in another (Stanko, 2009). The financial crisis left governments shortchanging both pensioners and employees, with the for-mer receiving devalued pensions while the latter were left dismayed by the insecurity of their savings. Pension privatization had been costly for the states involved because of the “transition problem”—somehow governments had to pay some sort of pension to all those who had been in the public system while making sure that contributions from today’s employees were invested in the new pension funds. The only feasible way to do this was to float a loan, yet doing so ratcheted up public debt and Eurostat rules did not allow this to be offset by positive balances in private pension pots. While Brussels had failed

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to spot the danger in Greek bonds it was vigilant in insisting on full disclosure of the “transition loans” required by pension privatization.

As successive waves of crisis suggested, the method of coordinating an econ-omy by means of a stock exchange is plagued by instability and systemic risk. Finance of any sort must expect uncertain outcomes, but the “free market” exacerbates what is an inevitable problem and allows banks to blackmail the political authorities. Mega-banks are known to be dangerous, yet Western gov-ernments continue to indulge them and shelter them from losses. Matters are even worse where financial entities are not only “too big to fail” but also “too big to save,” as may be the case with several European banks. The financial in-dustry lobbies still permeate government, fund the dominant political factions and sustain key “think tanks.” Applying further doses of the very medicine that weakened the patient in the first place perpetuates its attendant problems.

Diagnosis and Remedies

Mainstream policy responses appear to be based on the assumption that re-covery requires little more than deleveraging after a burst housing bubble and boosting growth after a business-cycle decline. But as I have suggested above, the current travails of the core economies are the result of deeper imbalances within the global system. Underlying the massive growth of the U.S. financial sector over the past decades has been an epochal loss of American manufac-turing competitiveness. In 1998 Robert Brenner argued in “The Economics of Global Turbulence” that rising global over-capacity in manufacturing meant that OECD economies faced a major contraction.7 Throughout the neoliberal era, Western governments did their utmost to restore profitability rates and sustain an illusion of unending growth. Loose credit conditions encouraged households, enterprises, and local government institutions to take on large amounts of debt. U.S. households resorted to credit—including nearly $1 trillion of “home equity loans” (second mortgages). The fiat dollar system instituted after 1973 permitted a vastly expanded dose of credit creation. As the French economist Jacques Rueff once warned, the dollar regime creates an international balance of payments system that functions like a game of marbles in which, after each round, “the winners return their marbles to the losers,” as Washington’s creditors invest the dollars they receive for goods sold to the U.S. in dollar-denominated instruments in order to keep their own currencies competitive, while the U.S. could simply print more dollars to pay its bills (Duncan, 2003, p. 43). In successive decades the Germans, Japanese, and Chinese learned this lesson. Its effect was to boost credit creation and mask the weakening of the U.S. economy.

The epochal rise of China and other Asian producers after 1992 brought a huge increase in productive capacity and sent floods of dollars to swell the U.S. financial-account surplus, but proportionately it added much less to glob-al aggregate demand. The rise of the Asian producers could have been good news for everyone if their worker-consumers had been better paid. But wages were driven below their value in emerging and developing states, leaving a


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consequent shortfall in demand. Prabhat Patnaik (2011) has defined this as a classic “realization crisis,” on a global scale.8 During the boom years of the late 1990s, China helped to maintain the gigantic credit expansion by in-vesting its surplus in U.S. Treasury bonds (Glyn, 2005; Obstfeld & Rogoff, 2009). Deficiencies in demand resulting from stagnating wages in the West, and far lower pay in the East, could be held off for a time by finding new ways to increase U.S. household debt, via easier mortgages, credit-card facilities, and automobile loans. European consumers joined the party in the new cen-tury and their governments were grateful for cheap loans. Institutional inves-tors—not least pension funds and insurance companies—helped to produce an opaque financial system, one which was a prey to asset bubbles, unregulated “shadow banks,” and a proliferating “financialization.”9 Between 2000 and 2007 many pension funds turned to hedge funds to boost their rates of return, allowing themselves the risk involved because they had stowed away tens of billions in “risk-free” eurozone bonds.

But the easy credit flooding the U.S. and Europe had become detached from economic fundamentals. Growing inequality in China blocked the sort of bal-anced growth seen in postwar Europe. Chinese workers or farmers could not earn enough to become good customers for overseas products, while in the U.S. low-paid or poor borrowers were taking on too much debt—especially housing debt they soon found impossible to service. The non-performance of these “subprime” mortgages not only helped to bring about the crisis in 2007 but has stubbornly remained central to it ever since (Turner, 2008).10 Ultimately, the best way to tackle the fundamental imbalances that produced the crisis will be to reduce global poverty. If low wages and poverty hold back consumption and perpetuate global recession, then ways must be found to restore demand at the roots of the global economy.

“The way forward”?

With the U.S., U.K., and much of the eurozone now facing renewed recession compounded by the threat of further banking and sovereign debt crises, dissi-dent voices are beginning to be heard from within the ranks of the economic establishment. In an October 2011 paper, “The way forward,” Daniel Alpert, Robert Hockett, and Nouriel Roubini noted that successive rounds of monetary and fiscal interventions by the Federal Reserve and U.S. Treasury had failed to produce a sustainable recovery and urged that only more radical measures had a hope of success: “Current economic conditions call for a much different kind of recovery program than those proposed or attempted thus far—one that is more sustained, more substantial, more concentrated, and more strategically aimed at creating new sources of wealth” (p. 14). Like Glyn and Brenner, they identified the roots of the asset bubbles in long-term excess global capacity and huge trade imbalances, and argued that poverty and inequality—within countries and between them—played a significant part both in provoking the crisis and preventing recovery.

Roubini and his co-authors estimated that the massive overhang of house-hold and financial debt in the U.S., “occasioned by our worst credit-fueled

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asset-bubble burst since the late 1920s,” could take between 5 and 7 years to wind down, during which time great damage would be done. More formida-bly, the crisis was the upshot of epochal shifts within the world economy. The entry of successive waves of new export-oriented economies, peaking with China in the early 2000s, had decisively shifted the balance of global supply and demand:

In consequence, the world economy now is beset by excess supplies of labor, capital, and productive capacity relative to global demand. This profoundly dims the prospects for business investment and greater net ex-ports in the developed world—the only other two drivers of recovery when debt-deflation slackens domestic consumer demand. It also puts the entire global economy at risk, owing to the central role that the U.S. economy still is relied on to play as the world’s consumer and borrower of last resort.

In addition, the entry of China’s vast low-paid workforce had further shifted the balance of power between labor and capital in the developed world, re-sulting “not only in stagnant wages in the United States, but also in levels of income and wealth inequality not seen since the immediate pre-Great-Depres-sion 1920s” (Alpert, Hockett, & Roubini, 2011, p. 3). In response to this, “The way forward” proposes a three-part plan, comprising:

1. A $1.2 trillion 5-year plan of U.S. infrastructural investment, to take ad-vantage of a “historically unique opportunity” to put idle capital and labor to work at an “extremely low cost.” The size of the effort would be critical, since further feeble “stimulus packages,” tax cuts, and “quantitative easing” at a time of excess capacity would be “pushing on a string,” while vain attempts at deficit-cutting could actually increase overall deficits.

2. “Debt overhang reduction,” offering relief to low-income debtors and re-quiring financial institutions to accept write-downs against non-performing assets.

3. “Global rebalancing” that would see wage rises and welfare improvements in developing states; better social-security provision for old age in China would reduce excessive saving and encourage consumption, with the pledging of state assets to such a program. The global “rebalancing” rubric also covers a proposal for the setting up of a “World Economic Recovery Fund,” to be financed by surplus countries but with constitutional changes to give them fair representation in the World Bank and IMF.

How should these proposals be assessed? The best way to boost wages in China would be to improve labor rights, not—as these authors see it—mainly through a rvaluation of the Chinese currency. The renminbi has appreciated over the last 2 years but the main gains from this go to compradors rather than producers. Better wages going direct to Chinese households would have the most direct impact on consumption levels. Popular agitation for better pay and social protection is insistent and should be met (Loong-Yu, 2006). Roubini


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and his fellow authors rightly argue that decent pension coverage for all Chi-nese workers would encourage them to save less and spend more. “The way forward” calls for debt forgiveness and supplies some technical elaboration on how best to accomplish this, but its debt-forgiveness proposals are meaner than those of the TARP Inspector General. “The yay forward” does not really deliver on its promise to identify “new sources of growth,” confining itself largely to infrastructure programs and the setting up of a “World Recovery Fund.” Nor does it address the need for state-sponsored re-capitalization of the banks.

Global minimum wage?

A more radical set of proposals is urged by Richard Duncan in The corruption of capitalism. Duncan had already pinpointed the low-wage problem in his 2003 The dollar crisis, which offered a strikingly accurate prediction of the coming crash. He urged the case for a global minimum wage in the export sec-tor, to be enforced both by international institutions and by the workers them-selves (Duncan, 2003, 233–50). He concedes that achieving a consensus on the need for modest but steady wage rises in the export zones would be hard. The large corporations have sub-contracted work to these areas, or built their own facilities there, because they see low labor costs as essential to profitabili-ty. Yet the global income gap is now so large that a minimum wage would only marginally raise prices to the final consumer. If an hourly wage of $3 is raised to $4 this will boost local demand by about a third, but would lead to a price rise of only 2% or 3%. The experience of “fair trade” projects shows the scope for winning support for minimum wages in the export sector. Building the au-dit and inspection regimes needed to enforce the global minimum wage would pose difficulties, but Duncan argues that these would be far from insuperable, especially given the keen interest that wage-earners typically take in their pay.

Duncan urges that wages in the Western corporations that dominate the export sector can be invigilated far more readily than other wages or income; indeed the cross-border movement of goods and services is already subject to mon-itoring. The moral case against very low pay for hard work and long hours is easy to make. Unlike traditional commercial protectionism, the proposed new norms would not seek to exclude imports from low-wage countries but only to set a floor beneath which export-sector wages should not fall. It would be designed to raise aggregate demand in ways that would spread through the entire economy. Most OECD countries already have some type of min-imum-wage legislation, but do not focus on the wages and conditions in the export sector, as Duncan urges should be done. Raising wages in the export sector would have a significant impact on aggregate demand in low-income countries, which would by itself help generate growth.

While there are points of agreement between Duncan’s analysis and proposals and those of Roubini and his colleagues in “The way forward,” Duncan is more specific regarding “new sources of wealth.” He urges that low interest rates and a glut of capital mean that public authorities could cheaply fund

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large-scale programs in renewable energy, nanotechnology, and bio-technolo-gy (Duncan, 2009, pp. 188-190). In Duncan’s view each of these programs, if properly funded, would require $1.2 trillion, for a grand total of $3.6 trillion. Duncan explains that the enterprises that would undertake these ambitious programs would themselves not be government-run but would rather be public “trusts.” While Duncan’s approach has the needed scale and scope, he seems a little uncomfortable with the fact that he is advocating such sweeping mea-sures of public entrepreneurship. He attacks the bank bailouts and the stimulus programs as a corruption of the spirit of true capitalism, while the measures he proposes would nurse the accumulation process back to rude health. However, if public finance establishes these new trusts, they should surely remain in public hands. While his categories may be disputed, in the present conjuncture state capitalism may well be preferable to new doses of austerity and privat-ization, so long as this public entrepreneurialism is accompanied by measures to empower communities and working collectives.

Duncan’s proposals chime in well with measures proposed by Diane Elson and other feminist economists who advocate new trade policies which would out-law child labor, gender discrimination, ecological malpractice, denial of labor rights, and very low wages (Staveren, Elson, Grown, & Cagatay, 2007). These authors argue that trade imbalances have their roots in “absolute” rather than “comparative” advantage; the imbalances reflect technology gaps and skill gaps rather than “perfect competition.”11 In many export zones the workforce is dominated by young women, as yet unburdened with family responsibilities but possessed of “nimble fingers,” discipline, and a capacity for sustained hard work. Trade rules could establish minimum wage rates—eventually, perhaps, a “living wage” sans frontières—as well as safety standards, access to edu-cation, and labor rights for these workers. A parallel case for trade rules that would discourage the super-exploitation of the poorest workers has been made by Jean-Luc Gréau, formerly chief economist of Medef, the French employ-ers’ federation (Gréau, 1998; Grahl, 2011).

The British debate on how to tackle the crisis has also produced radical pro-posals, if none as comprehensive as those just considered. Robert Skidelsky urges the need to go beyond monetary measures and commit large public resources to a very active National Investment Bank (Skidelsky & Martin, 2011).12 Gerald Holtham (2010) argues that such a public bank could raise growth and reduce deficits by financing investments that would earn future revenues, such as social housing or toll roads. Holtham suggests that one of the already nationalized banks could be adapted to this function and, if guar-anteed by the government, could borrow money cheaply.

Pension funds, because of their vast size—they account for approximately a quarter of total global financial assets—move politicians and financiers to vi-sionary proposals that could channel these providential reserves of cash to fix the decaying social fabric. Since contributions to retirement schemes are tax-favored, it seems only fair to put them to work until they are needed to pay


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pensions. But what would be the risks and the rate of return? The British finan-cier Edmund Truell has argued that the U.K.’s public-sector pension schemes would become far more affordable if members’ contributions were mobilized to boost investment in infrastructure. In this way the government could slay two dragons with one sword. It would find the finance for a vast £1.3 trillion program of public works, on the one hand, and on the other staunch looming deficits in Britain’s public-sector pensions. The pension funds would enjoy special access to such government-supported construction projects, enabling them to borrow cheaply and earn a guaranteed return (Robins, 2011; Henry, 2011).13

However, much would depend on exactly how the new public-sector pension arrangements were set up and run. I have already pointed out that private, commercial pension provision is costly and precarious. The public sector—both employees and the government itself—have the needed personnel and expertise to set up a body which would run these schemes, so this is what they should do. But it would not be equitable to supply this government-spon-sored second pension for public-sector workers and neglect to make similar provision for all citizens. The eminently justified defense of their members’ entitlements by Britain’s public sector unions could only be strengthened by a campaign for a universal second pension.14

However, it would be necessary to have strong guarantees and clear guidelines. If retirement funds invest in public projects then their rate of return should be clearly protected. Some of the dangers may be gleaned from a recent report:

Four infrastructure fund managers and U.K. pension funds representing more than £50 billion of funds under management signed an initial agree-ment with the Treasury to invest in schemes such as railways, roads, and energy projects . . . The Treasury is hoping to set up a new model of in-vestment in infrastructure to replace the now broadly discredited private finance initiative. A review began earlier this month in ways to raise private finance for such schemes which would provide “better value” than PFI, where the typical cost of capital was 8%. The model will offer lower returns but is expected to be linked to RPI inflation (Parker & Pickard, 2011).

The British government, having dedicated itself to fiscal retrenchment, is des-perate for an “off-balance-sheet” mechanism to fund badly needed investment in infrastructure. But pension funds will find these investments too risky un-less the government is prepared to guarantee both the principal and a mini-mum rate of return. The funds should not be expected to face the risk of cost overruns. However if such guarantees are offered then some provision would have to be made in the public accounts and, following the costly expedient of PFI, it would be more difficult to offer certain profits to the Treasury’s projected commercial partners. While the British Chancellor embraced this project, its size was modest (only £3 billion a year) and its details are not yet agreed. Most U.K. pension fund managers lack the skill or size to evaluate

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public infrastructure projects, but a public body would enable them to pool resources to this end.15

Pension funds and schemes offer participants a nominal stake in the capital-ist order while actually supplying only a very modest supplement to public schemes. Pension assets are held by nearly everyone in the Netherlands and a few other states. The more common pattern is for about a half of employees to be covered and for there to be great inequality in the value of that coverage. Thus in the U.K. and U.S. half of all tax relief accrues to the richest 10% of employees. However the public bodies that have been set up to regulate pen-sion funds—the PBGC in the U.S., and PPF or National Employment Savings Trust (NEST) in the U.K.—could be endowed with more resources and more powers (on which more below).

In the best of cases, proposals to invest in infrastructure take many months to have an impact on employment. The quickest way to boost demand would be to lower taxes on earnings and consumption. In both the United States and Europe, payroll taxes (social security contributions) could be overhauled to re-move them completely from low-paid workers and the under-30s while raising the ceiling above which such contributions are payable. Such a reconfigura-tion, if properly calibrated, could with one blow boost demand, lower the cost of hiring new workers, and raise tax from higher earners. The adoption of such a change by German governments over the last few years has seen unemploy-ment drop from 9% to 5%, while the pay of IG Metall members rose by 13% in the years 2005–2009.16

Audit of Sovereign Debts

Crisis 2.0 has seen debts incurred by the banks being taken on by pensioners, students, teachers, care workers, and the unemployed, as governments capit-ulate to the bond traders and ratings agencies, bailing out some undeserving lenders at 100 cents to the dollar. Recognizing and writing off losses is an essential part of the recovery process, but a deliberate and selective process is preferable to an ad hoc crisis response. Strategies should include an audit of public debt, leading to selective debt repudiation, with “odious debt” wiped out entirely. (Odious debts are usually defined as those contracted by a regime without the citizens’ consent and for objectives that are against their inter-ests, with the creditors being aware of these conditions.) An audit allows the processes by which the debt has expanded to be documented and identifies which creditors should legitimately be paid. In 2007 the Ecuadorian President Rafael Correa appointed a Commission for the Full Audit of Public Credit, consisting of international economists and legal experts—CAIC, in its Span-ish acronym—to establish the legitimacy, legality, and adequacy of Ecuador’s loan negotiations and renegotiations since 1976. The CAIC found numerous irregularities and illegalities, some dating from the renegotiation scheduled by the 1995 Brady Plan. Armed with the audit, the Correa government succeeded in bringing debts of $3.2 billion to U.S. banks down to under $1 billion.


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If other countries undertook such an investigation they might well discover undue pressure, the suborning of public officials, and the corruption of leg-islators. (The above-mentioned “transition” loans to countries privatizing pensions could be an example.) They might also uncover debts contracted under such onerous terms that even repaying them several times over did not discharge them. Just as the subprime crisis was greatly intensified by “shad-ow banking” practices, so the sovereign-debt crises that followed have been exacerbated by hidden government liabilities, especially those enjoying “im-plicit” government guarantees. In Les dettes illégitimes, the French econo-mist François Chesnais (2011) extends the idea of “odious debt,” arguing that public debts should be repudiated as illegitimate if they are contracted in the course of making “gifts to capital”—for example, public investment in state-owned assets as a sweetener for privatization, or fiscal deficits incurred as a result of low levels of direct taxation, where tax revenues are deliberately re-placed by debt (pp. 95–141).17 The venerable principle of Jubilee recommends the cancellation of debt. However, there is still scope for discrimination, since sometimes the rich owe money to the poor, and bear full responsibility for having borrowed it. If Italy repudiated all its bonds it would hurt small savers, since millions of the latter together hold 14% of the total. Those advocating radical solutions should be careful not, unwittingly, to drive the petty bour-geoisie into the hands of the fascists. (Repudiation could, of course, exclude such savers and genuine pension funds and charities.)

It should be recalled that debt and credit are two sides of the same coin. Credit is a wonderful thing if used to nourish the real economy, producing “goods” and avoiding “bads.” The bad side of easy credit was seen in successive specu-lative bubbles in third-world debt (1980s), dot.com shares (1999–2001), and property and mortgages (2004–2007), each of which did little or nothing to boost the real economy. But since 2008 we have seen that recovery has been prevented by the chill shadow of a credit famine.

A sovereign default that imposes losses on large-scale financiers, not poor sav-ers, may be a worthwhile option in a case like that of Greece. Large tranches of Greek debt would certainly count as “odious”—for example the large loans taken out from French banks by the Karamanlis government from 2005–2009 to fund purchases of French fighter jets, or the vast sums spent in preparation for the 2004 Olympic Games. Sovereign default imposes a high price: Coun-tries that forfeit the confidence of the markets immediately find borrowing expensive or impossible. Argentina’s wholesale default in 2001 paralyzed eco-nomic activity: Many jobs were lost, businesses wrecked, and savings wiped out. Attempts to use barter to resuscitate the economy proved cumbersome and often ineffective. However, the piquetero movement and a wave of factory occupations allowed some enterprises to survive until they could be saved by the Kirchner administration in 2003. Argentina was to show that there is life after default—and negotiations too. Argentina repudiated debts totaling $81 billion. After an interval, and anxious to regain normal trade facilities, the Argentine government offered its creditors 35 cents on the dollar. Aware of

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the weak state of the Argentine economy, most of the country’s creditors ac-cepted, though compared with other defaults the write-down was a severe one. After a steep devaluation, the Argentine peso was stabilized at a competitive rate. Agricultural exports recovered and under Presidents Kirchner and Cristi-na Fernández income and employment revived.

A Greek exit?

In the case of Greece, devaluation would not be an option unless the country took the expensive step of reverting to the drachma. But in other respects, the country is already suffering the catastrophe which established wisdom claims debt repudiation would bring. Attempts to stave off default have already brought about economic collapse and the country has effectively been shut out of international capital markets since spring 2010. A repudiation would leave the remaining debt more sustainable, and Greece could continue to borrow internally, as it did before 2001. One commentator has pointed out:

If Greece had defaulted in early 2010, Greek debt could have become sus-tainable in the long run with a write-down imposed on bondholders of con-siderably below 50% of total debt. The country would have had to borrow internally, perhaps issue IOUs (as it has done already), and impose a few modest cuts. The effect of such a policy would have been mildly recession-ary. What was done instead by the troika was to provide Greece with loans so as to cover its budget deficit without default, in exchange for increasing-ly draconian budget cuts, tax increases, and institutional changes of dubi-ous value . . . The effect of this policy has been a fast downward spiral of the economy. Since debt keeps increasing and the country keeps getting poorer fast, debt is becoming ever less sustainable. The debt-to-GDP went from 115% to 160 % in less than 2 years (Skaperdas, 2011).

Public Utility

Tackling the problems of finance will centrally require the building of pub-lic-utility banks and credit systems, reaching out from national centers and devolving resources to every locality, on the one hand, and cooperating with regional and global partners, on the other.18 Strategic public ownership is a necessary but not sufficient condition, since public authorities can be tempt-ed into their own speculative excesses. A public-utility finance system would have at its core publicly owned and publicly accountable banks, regulatory agencies, and social funds. The latter would inform and empower individual citizens and regional or local networks. The neoliberal model, by contrast, hands over public assets and social programs to private corporations and pro-motes a pervasive commodification of health, education, pensions, and access to the natural environment.

While social ownership and local finance should be encouraged, stringent safeguards are needed to insulate such funds from commercial and specu-lative pressures. Community banks and building societies have shown that they can give good service, if prevented from taking on extraneous “leverage.”


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However, they soon run into trouble if “liberated”—that is, deregulated or privatized—and permitted to act like commercial banks. Thus German manu-facturing corporations have long benefited from the country’s largely publicly owned Landesbanken; but during the last decade or so several of these banks were tempted to speculate with complex mortgage derivatives and ran up huge losses as a result. This phenomenon is yet another example of the perils of deregulating and semi-privatizing public-finance networks—other cases in point being the U.S. Savings and Loan associations, Fannie Mae, many British privatized former mutuals (e.g. TSB), and the Spanish Cajas. Each of these worked well for decades as publicly owned and well-regulated institutions; all got into difficulties once deregulated, privatized, or demutualized.

Public resources and enterprises need to be continually replenished if they are not to be overtaken by the momentum of private accumulation. Rudolf Meid-ner, the Swedish labor economist, proposed an annual share levy on the major corporations, each of which was to issue new shares each year equivalent to 20% of its profits, to be distributed to a regional network of social funds. The proposal has the advantage that it shaves a sliver of value from all shares, even those held in tax havens. However the social fund network would hold the shares it received for the long term, and use the dividend income they gener-ate for specific purposes, such as pension provision.19 A number of states—notably Norway, Australia, and China—nurtured sovereign funds or “future funds” which acted as a buffer during the crisis. Such funds might be invested in ways that promote productive capacity, social housing, or environmental protection. Projects like these build long-term assets which can be drawn upon in case of events both unpredictable (natural disaster) and predictable (an ag-ing population). In some countries, publicly run provident and pension funds also play this role; the managers of such funds invest in development or social infrastructure but are increasingly aware that these should foster environmen-tal sustainability. In the U.S. and E.U., though, free-market principles and pri-vate lobbies have discouraged sustained public investment programs.

Twenty-first-century advocates of public enterprise and social planning need to reshape them in ways that avoid their historic pitfalls. Recent years have seen striking successes for publicly sponsored economic development, but with some serious accompanying problems. Thus IT manufacturing in Tai-wan’s Science Parks and agricultural production in Brazil’s cerrado back-lands have enabled these countries to become the world’s leading suppliers in several of the lines of production chosen for development by the public agen-cies concerned two or three decades ago. In the Brazilian case, a crucial role was played by the Embrapa, the Brazilian Agricultural Research Corporation, and its success in rehabilitating the soil of the cerrado, previously inhospitable scrubland.20 Public subsidies were used strategically to set up viable entities rather than to cover ongoing operational deficits. Yet the very success of the publicly sponsored programs in Brazil and Taiwan has created unacceptable environmental problems. Though worrying, these problems should not be un-manageable if the public authorities and the productive new entities were an-swerable to local communities for their impacts.

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Unfortunately, the success of these programs also makes them juicy targets for privatization, with business interests stepping in to take charge. The de-mands of the knowledge economy put a premium on the socialization of re-search costs, an excellent example being the German Fraunhofer research net-work, with its 18,000 staff and budget of €1.65 billion. This public network has made a vital contribution to the successes of Germany’s Mittelstand, or medium-sized enterprises (“A machine running smoothly,” 2011). China has supplied both positive and negative examples of state entrepreneurialism.21 The sheer scale of Beijing’s intervention has been such as to have an impact on the global economy, something that could never be said of even the most powerful commercial organization. In most medium-sized or large states the public authorities also have the potential advantage of size. This is a critical consideration in any deep-seated crisis.

The aims of any new development program should be to stimulate invest-ment-led growth, foster sustainability, encourage the formation of human capital, and yield a growth in productivity. Such a package would seek to decommodify major areas of social life, giving everyone free access to decent health care and education, and endowing everyone with a share and say in the control of economic resources (Elson, 1988; Blackburn, 2007). A pub-lic-utility finance system, buttressed and sustaining networks of social funds, could reconnect finance to its social context and democratize its workings. The traditional socialist model of “nationalized” and planned economy has had its successes—and in some areas may still have its uses. It makes sense for railways, electric power, water, and other natural monopolies to be publicly owned and run. But the command-economy model has had its day. If markets are properly monitored, regulated, and socialized they can play a useful, even valuable, role.22 The social ownership of pension funds—and their manage-ment alongside the pursuit of socially responsible criteria—can add an extra dimension to this. National and international regulators will find it difficult to have the information they need to oversee a myriad of economic actors. Socially owned institutional investors would add another type of “regulation from below” to enhance “regulation from above.” They could, for example, use their shareholding powers to foster a minimum wage in the export sector of countries with low GDP per capita. Public credit should be deployed to invest in a green economy as well as to reduce the scale of global poverty and to defray the costs of aging. The anarchy and uncertainty of global exchanges and capital flows must be addressed and regulated in ways that empower and inform the generality of citizens and the communities to which they belong.

In many ways the approach I have sketched is the polar opposite of that associ-ated with Hayek, Friedman, and free-market economics. But the latter school has accepted the need, in extreme conditions, for a financial stimulus—using helicopters to drop great sacks of cash on all and sundry. Yet in practice the helicopters drop cash only on the banks. If printing money is in the public interest, why shouldn’t everyone be on the receiving end? Why shouldn’t the helicopters drop the cash on the poor, or on the whole population? In a very


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unequal society, putting money in the hands of those who need it most is the best way to raise demand. In addition to the introduction of a minimum wage in the export sectors, the granting of debt relief to struggling households in the advanced-capitalist countries would not only be worthwhile in itself but would also help to generate higher aggregate global demand and a prospect of overall growth. The current overhang of household debt induces stagna-tion. The Australian economist Steve Keen proposes a radical debt-destroying strategy: “governments should give the public a dollop of cash. Those that had debts would be obliged to pay them down, those that didn’t would be free to spend the money however they wished. The result would be lower debt levels and greater spending power.”23 An even more radical strategy would simply cancel all debts, or all debts up to a threshold amount (say £35,000), but the frugal might object and the banks would take a hit. Keen’s even-handed civic premium could be welcomed by all as a positive way to cut debt that is an obstacle to recovery.

As the TARP “inspector general” Barofsky explained, a bailout “from below,” reducing the burdens on the poor and low paid, would have been more effec-tive—and more conducive to public utility—than the banker-friendly bailouts “from above.” Debt-relief programs also need to be extended to those bur-dened by student loans. In Britain student debt is forecast to treble to £70 bil-lion by 2015. Student debt is particularly heavy in the United States where it is expected soon to reach the $1 trillion mark, only just short of total credit-card debt (“Student loans in America,” 2011). True to the spirit of financialization, indebted students and graduates are invited to manage their debt in a com-plex variety of ways. Those who make unlucky choices can find themselves subjected to financial suffocation—by 2009, nearly 9% of holders of student debt were in default, with dire consequences for their credit rating. The need to service such debt distorts the options students face and has a dampening effect on demand.

We face the need to reconstruct a concept of the public, one that has room for, but is not wholly defined by, public ownership, national regulation, in-come redistribution, and decent social services. It should correspond to the twenty-first century and the epoch of globalized capitalism and the knowl-edge economy. From the standpoint of humanity as a whole, a “nationalized industry” represents a partial interest. When such a concern invests overseas, the balance of public interest would have to be struck between at least two “publics” and often many more, just as within any state there will have to be a balance between the interests of employees of a state enterprise on the one hand and citizens on the other. The “public interest” is best determined by a multiplicity of institutions and practices, offering broad access to information, debate, and decision. So long as states enjoy sovereignty they will play a key role in facilitating—or denying—such democratic accountability and in meet-ing the challenge of the crisis. If the rescues demand vast amounts of public money, as is already clear, then any positive outcomes should accrue to public bodies, just as Norway’s massive state pension fund is a legacy of the govern-ment rescue of the country’s banks in 1988.

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Even within the constraints of a capitalist society there are institutions to be found which manage to contribute to a manifest public interest or concern. The U.S. Social Security program or the British National Health Service could still be improved, but nevertheless for over half a century they have embodied the principle of universal coverage. Both programs were saved from repeated threats to their integrity by the mobilization of public opinion and continue to face such threats today. But they show that the notion of public service can be successfully defended even in the most inhospitable of contexts.

High road to development.

I have placed the crisis in the context of epochal imbalances and inequality, and have proposed a development path based on a living wage, good working conditions, education for all, decent levels of care, gender equality, and high skills. The needed boost to demand would have to stem not solely from higher wages but also from investment in infrastructure and green technologies, as well as funding decent pensions, healthcare, education, and welfare systems. So far as governments and enterprises are concerned the objective should be to pursue the “high road” of competitive advantage, based on improving ex-isting levels of education, skills, and care, and shunning the “low road” which bases competitive advantage on sweated labor, gender gaps, and the dumping of social costs.

This approach seeks to humanize the global chain of commodity transactions using international agreements, national legislation, multi-actor “codes of conduct,” labor rights and collective bargaining, community representation, transparency rules, and ethics commitments from corporate and financial agents. The production and sale of commodities presumes reproduction of the work force, and waged labor is combined with unpaid care work. Support for unpaid care workers dovetails with ensuring decent working conditions. Finally, economic arrangements should be such as to ensure something close to full employment and that economic growth is not based on the squandering or ruin of the earth’s resources.

Such a strategy is, clearly, very far from the agendas of the states and political classes now running the world. But their measures have so far only succeed-ed in deepening and perpetuating the crisis. Should it now take a turn for the worse, with a further financial meltdown in the Atlantic economies and a slowdown in China, all bets will be off. In that eventuality—and indeed, in any longer-term perspective—it is vital that constructive proposals for a genuine way out of the crisis, to the left, should be worked out now.


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Footnotes

1. For the dynamic of “historical cycles” of debt see Altvater, 1993. 2. The Obama Administration’s fiscal stimulus was persuasively criticized at the time by Paul Krugman and Joseph Stiglitz, both for its small size and for its heavy reliance on tax cuts.3. As another Financial Times commentator put it: “The presence of a risk-free asset can hardly be overstated in a modern financial system. Each insurance company, each pension fund needs to invest part of its income in such assets. Through a combination of short-sightedness and financial illiteracy, the European Council has now put itself in a position where it desperately needs Euro-bonds, if only to assure the existence of a functioning financial sector” (Münchau, 2011). 4. The $50,000 figure excludes the house they lived in and membership of the fast-dis-appearing Defined Benefit pension schemes.5. I discuss this in “The subprime crisis,” 2008.6. See also Arza, 2008. Several countries that had adopted private pensions subse-quently revised their retirement systems to give greater importance to the “public pillar” of state pensions—Chile, Hungary, and Argentina among them.7. Subsequently published in book form with an afterword in 2006.8. Patnaik (2011) stresses the role of global poverty in precipitating and shaping the crisis (pp. 148–64, 259–71).9. A theme I developed in Age shock: How finance is failing us, 2006. A revised, pa-perback edition will appear in 2012.10. Buying a house is one of the largest financial transactions that the citizen of a developed country will make in their life (acquiring a pension is the only comparable investment) so it is easy to see why mortgages are big business. In 2007 U.S. house-hold debt was around 120% of GDP, with mortgages, including second mortgages, comprising over four-fifths of the total. While U.S. households shed some debt in the years 2007 to 2011, a 15% decline in house prices—and a rise in unemployment to 9%—brings losses for investors and foreclosure to mortgagees (on which more be-low). On the role of poverty in generating the crisis see Rajan, 2010.11. The “absolute advantage” thesis has been developed by Will Milberg, whose ap-proach focuses on deficient aggregate demand: See Milberg, 1994; Anwar Shaikh (2006) demonstrates that the acquisition of competitive advantage is determinant, and not the result of a mythical “perfect competition.”12. Skidelsky has also advocated this approach in articles for the New Statesman.13. This scheme could be run entirely by public, not-for-profit funds but Truell, a di-rector of the Pensions Corporation, seems to envisage commercial insurance running it.14. I explain how this might look in chapter 7 of Age shock.15. In recent decades banks have deployed the techniques of financialization to dom-inate infrastructure finance, often with unfortunate results. See Burgess & Davies, 2011.16. On German trends, see Unger, 2010. 17. See also the recommendations by a group of Attac economists in Attac, 2011.18. For the concept of the “public utility finance system,” see Gowan, 2009; Chesnais, 2011, pp. 17-24, 131-136. 19. Chapters 5 and 7 of Age shock have information on this experience. The “wage earner funds” plan was enacted in the 1980s in a much scaled back version and then wound up in 1992 by a conservative government; the assets in the scheme were used to set up a string of research institutes which strengthened the Swedish economy.

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20. See “Brazil’s agricultural miracle,” 2010. For the wider Brazilian context see Sader, 2011. The vicissitudes of public ownership in Latin America are explored in Madeiros, 2009. 21. For the innovative approach of the Chongqing authorities see Huang, 2011. 22. As classically argued by Polanyi, 1944.23. As summarized by Elliot, 2011; see also Steve Keen’s website, Debtwatch. The inherent defects of stock exchange finance are identified in Keen’s prescient book, Debunking economics, 2001.

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INTEGRATION: SOUTH AMERICA’S RESPONSE TO THE CRISIS OF THE GLOBAL ORDERRicardo Aronskind

The Crisis of the Global Order

The current crisis is rooted in the contradictions of the post-war global cap-italist system. Up until the 1970s, two key characteristics—Keynesianism and the welfare state—defined global capitalism and guaranteed improve-ments in the quality of life of large sectors of the population, until big busi-ness began to perceive this system as an unnecessary obstacle to increasing profits. During the 1970s, the foundations of this institutionalized economic system were transformed with the goal of increasing profitability and dis-mantling the power relations that sustained the system and that were subse-quently nurtured by it.

As a result of policies implemented in the 1980s by the Reagan Adminis-tration, the United States trade deficit remained constant, while real salary grew only modestly, and the business sector made large profits as a result of economic productivity. The increased number and cost of global products in recent decades was absorbed by the demand created by wide availability of credit, which compensated for the relative reduction in income. This ex-plains why consumer debt increased from 65% to 95% in relation to income at the end of the twentieth century. Between the stock market crash of 2000 (the end of the dot-com bubble) and the 2008 crisis, this coefficient began increasing again and reached 130% by the end of this period. This dynamic stimulated the global economy since the large U.S foreign deficit was due to the increasing exports of numerous other countries, which thus experienced a stimulation of their domestic markets. However, the cause of the current crisis seems to be the inability to maintain this type of economy, which is based on increased credit availability and debt without any subsequent increase in real consumer income. The excessive debt of individuals, businesses, and States has saturated the credit markets.

More specifically, we can point to various factors that induced the 2008 crash:

a) The enormous monetary expansion carried out by the Federal Reserve in 2001 in order to overcome the crisis and avoid a possible recession provoked by the dot-com bubble burst, the injection of enormous sums of money into the economy, and the lowering of interest rates all created a market over-whelmed with liquidity that was invested indiscriminately.

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b) Financial innovations that were not controlled by legislation. Subsequent deregulation laws encouraged by financial companies allowed them to oper-ate without restrictions, transferring massive amounts of funds to insolvent economic sectors, and later “securitizing” fragile mortgages in complex stock market bundles that extended the effects of the crisis well beyond North Amer-ican borders.

c) The almost non-existent response from regulatory authorities, who failed to carry out their corresponding functions.

The saturation of the real estate market led to a turning point in skyrocketing-housing prices, which had been further inflated by speculation. This marked the beginning of a reduction in the value of real estate, as leverage based on these “fictitious” assets was highly elevated internationally. This chain reac-tion led to the fall of stock prices and the financial institutions that operated specifically within those markets. The collapse of major lending institutions granting credit, mortgages, and insurance on a global scale immediately dev-astated related banking services in the U.S. as well as in Europe, creating a domino effect in many countries.

The private sector withdrew from the market due to the fact that the finan-cial sector was the main channel of contagion of the crisis, and that global expectations were lowered by the United States’ predicament. Credit was no longer available, not only due to the contraction of lendable assets, but also because of mutual distrust among the lending institutions themselves. The governments of the principal developed countries bailed out the system, pre-venting the collapse of large financial organizations and deterring a state of panic among investors.

Unemployment quickly escalated and income dwindled, both in the countries that were directly affected by the crash, as well as in those linked by trade and commerce. The unemployment rate reached 9.8% in the U.S. and 21% in Spain, and increased around the world. Thus, salaries decreased which im-peded economic recovery dependent on an expansion of aggregate demand. The collapse in domestic economic activity led to a sharp decrease in inter-national trade.

The outbreak of the crisis in the U.S. and its continuation in the Europe-an Union affected the world economy, impacting growth in Latin America. However, this region recovered well thanks to relatively stable commodity prices and the implementation of public policies that sustained domestic de-mand. While growth almost ceased in the center of the system (the U.S., the E.U., and Japan), growth rates in South America, Africa, and a large part of Asia recovered. Latin America was affected by the crisis in various ways: the flight of capital to “safer” markets, a decrease in exports, increased interest rates, and low confidence levels among the private sector. However, the initial

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impact was not as severe as in other regions, given that Latin America was not as involved in the financial bubble, and has benefitted by high prices for raw materials.

The bank bailout in the most affected countries involved a huge expansion in public deficit, given the size of the organizations that were rescued. The phrase “too big to fail” was used to justify the bailout of large financial institu-tions due to the severe consequences that bankruptcy could have for the rest of the economy. At the same time, the rapid rise in unemployment meant a sharp increase in public expenditures to pay unemployment benefits to the jobless masses, similar to what had occurred in Spain.

Southern Europe experienced aftershocks of the crisis through repeated at-tacks from the financial sector aimed at the debt securities of countries with severe economic difficulties. Pressure was applied to suffering countries to reduce public spending in order to pay off their debts. European institutions, especially the European Central Bank, participated in this political lobbying.

Reactions to the severe international crisis varied. Only at the beginning when concern escalated regarding the danger of a more widespread debacle were bold measures deemed appropriate to contain the crisis. This emergency “cli-mate” was expressed in the first G-20 meetings, during which the major econ-omies of the world displayed a strong collaborative predisposition that, never-theless, did not result in any important decisions or actions.

On the contrary, the E.U. implemented fiscal contraction given their concern regarding high debt levels accrued by the majority of member states, and their increased debt due to expenditures provoked by the crisis. The policies of cut-ting public expenditure in several of the region’s countries led to downsizing the number of public employees or a nominal cut in their pay. It is important to remember that a significant part of southern and eastern European countries’ foreign debt is owed to the E.U. principal nations’ private banks.

Meanwhile, the U.S. launched a comprehensive set of measures, allocating enormous amounts of funds to the Executive Branch in order to bail out banks, insurance companies, and mortgage companies, but also to temporarily relieve mortgage holders and the newly unemployed. Fiscal difficulties have led nu-merous state and local governments to cut wages and to reconsider workers’ rights regarding both their working conditions and retirement benefits. There was also increased pressure to structurally reduce public spending, based on the fear that interest rates on public debt would increasingly exhaust the bud-get for decades to come. In August 2011, the rating agency Standard & Poor’s lowered the United States’ rating from the highest level of security to a lower grade, showing that the global “risk-free” economy had been downgraded in terms of reliability by the global financial sector.

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The collapse of aggregate demand in various countries hurt public finances, due to the subsequent drop in tax revenues, and reduced the private sector’s hopes for an easy solution to the crisis. Low inflation rates during the crisis have prevented a change in the relationship between debt and income, which is why it is difficult to imagine an expansion driven by private consumption in the core countries.

Important capital flows seek refuge in the commodity markets, producing vol-atile price increases that favor export nations while simultaneously generating speculative pressures on food that tend to create social problems in lower in-come countries and in lower socioeconomic sectors in general.

General Trends of the Crisis

From a more general perspective, we can conclude that:

a) The global economic crisis has been a result of the very nature of financial accumulation, which has not been significantly regulated by the governing institutions. The continuation of this system represents an obstacle to global economic recovery.

b) Despite being responsible for the current crisis, the global economic sys-tem and the neoliberal ideology it represents continue to operate in the deci-sion-making centers of the world with little social or political resistance. Only when the social effects of these economic policies worsen will significant po-litical alternatives emerge.

On the other hand, in the short term, it is inevitable that the crisis will set off a series of important systemic changes:

1. The U.S. will stop playing the role of “supplier” for the rest of the world, as it has for the last 30 years, given its external and fiscal imbalances.

2. The E.U. has sunk into a deep economic crisis. Its fiscal and debt im-balances threaten to fracture the economic zone. The neoliberal policies applied there will lead to the continuation and worsening of the crisis.

3. When the old Group of Seven (G7) expanded, it should have truly incor-porated important semi-peripheral regions (China, India, Turkey, Brazil, Mexico, and Argentina, among others) in an effort to collectively stabilize the global economy. However, the resulting G20 has proven to be power-less in proposing concrete policies to address the crisis.

4. The periphery has chosen to promote expansionary policies in their do-mestic markets, which may lead to a new, more active approach regarding the state’s role in the economy. However, this is threatened by speculative capital, which may obligate them to revalue their currencies. This would decrease their competitiveness and affect the external sector.

Integration: South America’s response to the crisis of the global order | Ricardo Aronskind

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5. There is a “war against labor” in core countries. While civil servants are suffering cuts in income and reduced rights, there are precarious and om-inous trends in the private sector. Growing global unemployment, espe-cially among young people, puts downward pressure on wages as well as working conditions.

6. The center of the welfare state, which fulfilled a key function in the pro-liferation of capitalism during the post-war period, is under increasing attack. Its decline will adversely affect the demand necessary to overcome the crisis.

7. Protectionist tendencies are on the rise in international trade. Various countries have carried out currency devaluations in order to lower the prices of local goods in comparison to imports. The main conflict on this issue lies between the U.S. and China, regarding the yuan’s value against the dollar. In the medium term, it is likely that a “green” protectionist pol-icy will be implemented that discriminates against products made in the periphery using “polluting” technologies.

Economy and Democracy at the Global Level

In mainstream media networks, there is no discussion regarding the social and human costs of this crisis. However, there is speculation around when the economy will recover, as though economic recuperation could automatically compensate for the social repercussions suffered by so many individuals.

Political scientists often congratulate themselves for expanding democracy around the world. Using formal criteria, they add up those countries where there are free elections, separation of powers, an independent press, and/or other characteristics that meet a simplified definition of this term, which leads them to the conclusion that there is an almost universal presence of the liber-al-democratic system.

However, political stability is much more complicated than this brief, obso-lete list of parameters. And social criteria add another dimension to ensuring social welfare. We believe that “politics” collectively organizes the regulation of relevant social problems. It is precisely within this framework—of sover-eignty and the right to self-government—that the freedom to express oneself, to debate, and to settle points of view without violence makes sense. A more comprehensive definition of democracy implies the effective establishment of self-government and of the ability to decide one’s own future.

Despite this, the formalist approach tends to obscure the fact that the glob-al power system is significantly removed from the ideal of full democracy, which, of course, is not equal to the sum of particular democracies.

In this sense, restricted democracy denies voters their right to make important decisions regarding social matters, which are defined by other “spheres” out

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of the public’s reach. The current global economic crisis is an example: The American people have been hit hard by a catastrophe provoked by giant fi-nancial corporations that invented fictitious profits. Their lives were suddenly devastated by the outbreak of a crisis that they cannot influence: They cannot defy big business if the very government does not do so.

Politicians in the core countries declare that they cannot regulate the market, although it can seriously affect the public. The resulting crisis is a corollary to the argument that globalization implies the decline of the nation-state. The sovereignty of the private sector was justified by the absence of the state’s sovereign authority, without considering the public’s opinion.

A second dimension that we must consider is the international political order, which is based on a complex power equation in which military, economic, technological, diplomatic, and cultural factors combine to influence outcomes. In this international order, important decisions are not subject to debate. On the contrary, the major parties agree that there are some “sensitive” issues not open to discussion, such as the development of weapons of mass destruction, NATO’s expansion strategy, CO2 emissions, or the policies of international economic organizations.

The world economic order is even less democratic, despite being comprised of nations that are officially democratic, and despite the fact that there is some degree of collective impact on states’ actions. However, what is the actual lev-el of democracy—understood as the possibility of conscious intervention by the majority in the definition of relevant problems—within the international economic order?

The world capitalist system has no correlation with the demographic weight of nations, but rather is based on the size of corporate capital, the market power of multinational firms, and the influence of states that support such capital. Large companies have dissociated themselves from government regulations and control, and their internal decision-making systems are not at all demo-cratic, even when their decisions have a large impact on the public.

The global crisis, in this sense, is actually a crisis of governance due to the current concentration and distribution of real power. Therefore, a new global order would not only reestablish democratic principles, but also prioritize social progress.

A Latin American Perspective

From a long-term perspective, since the mid-twentieth century—when the goal of economic and social development was explicitly laid out—Latin America has not found a way to eliminate the gap between itself and the developed world, neither individually nor collectively. This has two implications: On the


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one hand, we should recognize that the region’s achievements during this long period do not represent a significant reduction in the existing gap with regard to the region’s development goals; on the other hand, because these goals remain relevant, we are compelled to negotiate still more ambitious strategies and commitments.

Mercosur

After nearly 17 years in existence, Mercosur, the most ambitious regional in-tegration project developed in Latin America, has made progress and suffered setbacks, and there are still lingering questions regarding its stability. Despite many positive assessments, Mercosur does not seem to be sufficiently consoli-dated to prosper within an extremely dynamic and competitive global context.

Various explanations have been given to explain this regional organization’s difficulties. We believe that a major cause of the faltering integration progress is the strong influence of sectoral lobbying groups that repeatedly interfere in strategic governmental decisions, weakening the political will to move the process forward. The global trend towards the reduction of the State in relation to private interests—which has been exacerbated in recent decades—prevents any improvement of the situation. In order to define a strategic plan to defend and bolster local productivity, nation-states must enjoy greater autonomy from sectoral demands.

Additionally, our region’s economic structure is highly influenced by trans-national capital, whose interests are limited to benefitting from productive multinational processes without creating additional costs by crossing borders. The Latin American economy is the result of underdeveloped local capitalism and modest business development. In addition, globalization has contributed to the weakening of national projects during recent decades through the inten-sification of their productive, technological, and financial dependence on the corporate world.

Another relevant factor is waning political will, or the limited belief within influential political circles in the vital importance of integration processes. Certain political actors do not acknowledge integration as a strategy to favor-ably position the region within the changing international division-of-labor hierarchy. Unfortunately, the region has a historic tendency of “balkanization” due to strong external influences as well as the structural weaknesses of Latin American nations. This can be observed in an overemphasis on economic, po-litical, and cultural links with the core powers and in the inability to recognize the strategic value of endogenous development.

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The problem of the state in Latin America

If we consider the Latin American business sector’s structural weakness as a factor behind the region’s unsound development process, we could say the same of the state. The structural weakness of the State has led to a series of problems more or less common among our countries that must be addressed before any progress can be made. Following are some relevant characteristics of the Latin American State that act as obstacles to achieving transformation:

- Lack of a development project based on the region’s needs and resources and that establishes necessary articulations with the global market. The absence of a defined strategy has forced us to passively accept guidelines and pressures from other international actors.

- Difficulty in efficiently conducting development processes because of defi-ciencies in the planning, regulation, implementation, and evaluation of specif-ic policies. The lack of consistent policies in scientific research and develop-ment, and in stimulating innovation, product differentiation, added value, etc.

- Macroeconomic instability, uncertainty, and changes in the rules of the game. In part, this is due to the inconsistencies in economic policies—which end in fiscal or external bottlenecks—and to international interference in the region, which make the region more vulnerable to the volatility of global markets.

- The low degree of collaboration between local entrepreneurs and the na-tion-state. Neoliberal reforms combined the passivity of the public sector with traditionally unproductive business policies, neutralizing any strategic devel-opment initiative.

- Poor education and training policies in human resources: low education quality, starting with the lowest levels of the educational system. Little techni-cal training. Scientific systems poorly linked to production and small budgets.

- Inexperience in regulating foreign investment flows according to the needs of endogenous development.

- Political inability to resist pressure from developed countries and the finan-cial institutions linked to them to implement neoliberal policy.

These characteristics should not be considered “natural,” but rather historic constructions that can and should be modified. Like any joint venture, the best human and material resources must be mobilized in order to advance rapidly in the desired direction, because an effective state is a precondition for our progress.


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The impact of Asian expansion on the Latin American perspective

We must carefully analyze the role of China and other Asian countries in global business and financial sectors to understand the effects they have on Latin America.

The massive amount of Chinese commodities in various markets exerts com-petitive pressure that is very difficult for Latin American countries to sustain. This is occurring in Mexico, the U.S., and in the majority of our Latin American industries, which are feeling pressure to pay lower wages in order to compete in the market; otherwise, they will be displaced by Chinese merchandise.

While this entails stiff industrial competition, prices around the world have been driven up by the large Chinese demand for raw materials and goods with little added value, in order to meet both energy and food needs. This increase, whose duration is unpredictable, generates incentives for Latin America to prioritize the production of goods with little added value, taking advantage of the “oppor-tunity” implied by the price increase in commodities.

The period before the global crisis

Latin America experienced a favorable economic climate during the years prior to the current crisis. The global situation at the time benefitted certain foreign accounts in the region, facilitating positive trade balances with the rest of the world, a greater abundance of foreign currency, and debt reduction in several countries. Public revenues also went up, giving states the financial capacity to boost aggregate demand, and favorable conditions were created not only for pro-ductive growth but also for improvements in employment and general working conditions. At the same time, it should be noted that positive economic growth rates did not result in significant progress towards development, if we understand the latter as a set of qualitative transformations in the productive, social, and cul-tural realm aimed at actively repositioning our countries within the international division of labor.

With the economy stabilized by tax revenue, public finances less dependent on the money supply, and inflation under control, infrastructure projects and pro-posals for regional development banks began to emerge and were sufficiently funded to drive long-term domestic investment. These changes not only demon-strated the feasibility of a sound development process in the region, but created an environment of increased optimism as well. These proposals were an attempt to take advantage of favorable conditions in order to economically solidify the region and increase its productive integration.

The progressive regional debt reduction that occurred during this period helps to explain the reduction in financial transfers abroad, which were so important beginning in the 1980s. In contrast, direct foreign investment stimulated profit remittances to the core countries.

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Regarding trade, Latin America’s relationship with the U.S. had three options during the period prior to the crisis: developing the Mercosur project and es-tablishing its relationship with the U.S. within this framework, answering the United States’ call to create a free trade area (FTAA) on the continent, which would dismantle any possibility of an autonomous South America, or signing bilateral free trade agreements with the U.S., an approach that Colombia, Chile, Peru, and certain Central American countries ended up adopting. Due to the enormous amount of trade integration with the U.S., Mexico was already strong-ly conditioned in this regard. Presumably, the primary factor behind the FTAA failure lies in the unwillingness of the U.S. administration to offer any tangible advantages to South America that would sway public opinion to favor the treaty.

The international crisis of 2008 halted this positive regional cycle that was based on the high value of the commodities exported by the region. Fortunately, the entire global system didn’t react like the main core economies, which suffered a historically large contraction. The economies that were most disassociated from the financial bubble, and which had been diligently emphasizing productive ex-pansion, were able to overcome the shock without falling into recession.

The core of structural weakness

The importance of structural conditions should not be subordinated to various circumstantial or incidental factors. Latin America continues to be characterized by a number of internal features that impede the realization of its human and productive potential. We can mention the following important characteristics:

• South America still bears the greatest social inequality in the world;• The region’s spending on research and development, which is crucial for

true autonomy, is very low. Long-term policies are required to overcome this obstacle.

• The state apparatus is unable to efficiently manage its large number of pend-ing tasks, for the reasons stated above.

• Intraregional trade, which is one of the specific indicators of integration progress, is among the lowest in the world. This feature weakens the social and political alliances necessary for integration.

• An important part of Latin America’s productive apparatus has been inter-nationalized, revealing the asymmetrical features of “globalization.” Con-sequently, investment strategies respond to the logic of the international system.

• Significant, endogenously-generated economic surpluses, which are vital for accelerating the accumulation of capital, are “exported” via flight of capital, are legally sent abroad as remittances from multinational firms, or sent as service on foreign debt.

These characteristics of underdevelopment haven’t been overcome, but con-tinuing high growth rates and increased government revenues could be an opportunity to use the resulting resources to address structural challenges.


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Scenarios and Strategies

The global crisis is not over. Unemployment is still rampant and does not look like it will improve any time soon. The inner workings of the global financial system are a mystery, considering that the solvency of many financial entities is in doubt and credit is not being lended in the amount necessary to revive the global economy. In this situation, it is likely that protectionist tendencies will spread. Signs of monetary and fiscal deterioration in central and semi-periph-eral countries, coupled with the private sector’s dwindling confidence, create a self-sustaining vicious cycle that impedes a sustainable upward trend in de-mand.

If the U.S., a country so influential in our region, abandons the role that it has had in the global economy over the past 30 years as a great supplier of global demand, the impact could be considerable. And it is likely that the U.S. will change its behavior, both in its macroeconomic management and in its economic diplomacy. U.S. administrations will be less willing to freely open their markets to foreign imports and will exert more pressure for the opening of foreign markets to U.S. companies. The traditional argument of “privileged access” to the great U.S. market, used to convince countries to sign bilateral free trade agreements, will be weakened by probable restrictions and by off-sets required by the U.S. authorities.

The global “order” has not been beneficial for Latin America in recent de-cades. The entire institutional configuration, especially of the economic sys-tem, has not only failed to reduce pre-existing asymmetries, but has actually exacerbated them, forcing the peripheral world to accept the priorities and accumulation requirements common to the central nations, the multinational corporations, and the financial capital that originates there. This can be ob-served in the management of the Latin American foreign debt crisis of the 1980s, in the macroeconomic recommendations and political pressures from international financial organizations, in the strategic guidelines of the “Wash-ington Consensus,” and in the multilateral trade rounds, convened to promote the expansion and introduction of goods, services, and capital of the central countries into peripheral markets. This is why the “disorder of the order” tak-ing place in the world system might be a good opportunity for Latin America to create autonomous policies with a greater degree of sovereignty and to diversify its alliances according to its own agenda.

Even if the international context appears more favorable for Latin America in the coming years, given the dismantling of a system adverse to our progressive transformation, we cannot take this opportunity for granted. Change will only occur if we formulate and implement specific strategies according to our own interests, which will depend as much on the formulation of new ideas as on the management capabilities that enable their implementation.

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Reducing regional dependence on foreign markets and creating stable local productivity will mean increasing domestic demand in relation to external demand. Thus, the region would depend on the enormous potential of the Latin American market, because a significant portion of the population would be integrated into the production and consumption circuit. This goal, which would also help create greater social cohesion and political stability, could be achieved through measures that favor a broad redistribution of income, which could increase real local demand by 50%.

A particular challenge for Latin America is the intelligent use of its natural resources, which is seen as increasingly important in coming decades by those in the world’s power centers. We must bear in mind that, as our regional his-tory reminds us, highly valuable resources are not automatically equivalent to instruments of collective well-being. If a regional strategy is not formulated to use them in a relevant way, there is a good possibility of repeating the ex-periences of previous centuries, reviving the historic bonanzas based on the exploitation of available resources, without creating the necessary conditions for sustained participation in the global market.

However, our strategy should not be limited to the industrialization or devel-opment of our resource-based economy. Again, without developing the nec-essary endogenous business framework, countries will not be able to use the generated surpluses, which would create a situation familiar to the region: the export of surpluses via revenue transfers in such quantities that there would be little chance of accumulation. Therefore, if the region does not improve the quantity and quality of its public policies, it will once again miss an opportu-nity for progress, despite favorable external predictions.

In order to strengthen the process of regional integration, one of the main challenges will be to convince those countries in the region that have pursued a “shortcut towards prosperity” by asymmetrically aligning themselves with developed economies of the importance of implementing more endogenous projects. Mercosur would help those countries that have economically turned their back on the region to diversify their policy options, which would enrich their respective national agendas. From a regional perspective, improving re-lations within the autonomous Latin American bloc would promote important economic and political alliances and would be an indicator that regional con-struction is improving consistently.

In order to advance in creating this collective structure, it is necessary to make a qualitative leap in the integration process. Once we understand the magni-tude of the strategic challenges facing us, we must build sovereign institutions capable of addressing the major challenges that the regional strategic agen-da faces. To strengthen Mercosur, we need to overcome the traditional Latin American institutional weaknesses by strengthening the autonomy of regional public policies that confront various private lobbying groups. It is very likely


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that the supranational character of the new institutions would help strengthen public policy autonomy against short-term, special corporate interests.

The sovereignty transfer process is complex, no matter how gradual and con-trolled. However, with regard to the Latin American context and given the global scenario discussed above, it presents a dilemma that political actors in the region must understand very clearly. Speaking specifically in terms of sovereignty, it is better to create a regional entity responsible for implementing national sovereignty, and delegate representatives from all of our countries so that each is guaranteed the protection of its basic interests, rather than handing over full economic sovereignty to multinational firms and the central coun-tries, which would mimic formal sovereignty while in reality forsaking the revolutionary quest for independence that began 200 years ago.

Conclusions

Since the 1980s, the world system has shown an increasing bias toward eco-nomic and social inequality, consolidating itself as an undemocratic global or-der that is expressed in the unilateralism of central countries, in the antisocial behavior of multinational firms, in international organizations’ hostility to the periphery (such as the IMF, WB, and WTO), and in increasingly unbalanced capital-labor relations. At the same time, the current crisis has revealed that the global financial system is not only immoral and irresponsible, but also economically infeasible and an obstacle to the planet’s progress.

Latin America has suffered all the adverse effects of this global conservative trend, including debt, foreign ownership, and social deterioration. It has seen its societies weaken and become more dependent on the global order. Even if the outbreak of the crisis has not severely affected the region, the persistence and deepening of this crisis will pose a threat that must be addressed.

However, the recent changes in the global economic structure and the effects of the current crisis are creating a new degree of autonomy which our region can use to advance integration.

In an internationalist perspective, the region should move forward with pro-posals directed towards the democratization of the world order: It should de-mand a higher percentage of votes in the IMF, or a permanent seat on the United Nations Security Council. We also believe that the global financial and business order needs to be drastically modified. This system, which currently represents an aggression towards the periphery, and has also begun to ruin the future of the inhabitants of the central countries themselves, should be placed under the effective control of new institutions that genuinely represent the global citizenry.

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Looking inward, our region has so many opportunities to advance on issues that do not depend on the global order, but rather on the mobilization of our very own societies. Surely we can overcome both the sectors whose gains are built upon our region’s losses and the institutional and bureaucratic inertia typical of underdevelopment.

Latin American integration is not an economic enterprise. The nature of the task at hand implies the construction of a Latin American Region, which in-dispensably requires the masses’ imagination and will to sustain this historic project. Without real awareness of the opportunities at stake, the project will be relegated to an insignificant technocratic undertaking, without having an effect on the lives and future of its citizens.

In the twenty-first century, our sovereignty and our freedom depend on integration.


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ECONOMIC INTEGRATION: EUROPEAN RETROSPECTIVE, LATIN AMERICAN HORIZONSManuel Cerezal

Economic Tectonics and the Juncture of Integration

For several months, Europe has been orchestrating the funeral procession of the welfare state, a project performed by governments but conducted by rating agencies. Erected over the ruins of World War II using the Marshall Plan as leverage, the welfare state now awaits its ultimate fate in the strange, neo-clas-sic purgatory of the “troika.” In this critical situation, the European Central Bank (ECB) waited until December 2011, to decide to inject new cash into the economy, loaning a half billion euros to regional banks in exchange for their ceasing to harass the ECB with threats of systemic risk and catastrophe. A second loan for the same amount was released in late February 2012, and the banks are expected to take renewed advantage of this situation, creating a differential interest rate between what the ECB applies to them, and what they impose on their clients in the credit market. In summary, austerity prevails in the region, and for the banks outside these areas, the situation resembles that of a medieval famine which could never penetrate the castle walls.

Despite the serious social and political consequences that the return of the financial technocracy could mean for the management of national economies, the concern of European leaders seems to be focused on the survival of their protégé, the euro. They declared that Greece’s exit from the European Union would signal the end of the euro, but the “Merkozy” duo cannot hide its im-patience, if not its irritation, at the apparent refusal of the Greek people to sacrifice their next 20 years for the grandeur of the European integrationist project. In this picture, what stands out in black and white are the outcomes of certain priorities during the last two decades of integration: a certain ob-session with macroeconomic convergence, and the reduction of the labor and social spheres to the level of an adjustment variable.

Meanwhile, on the other side of the North Atlantic, we can confirm that the massive deregulations by the Federal Reserve have barely benefitted employ-ment levels because the financial sphere quickly whisked away the money pumped into the economy in order to continue speculating to balance their accounts, among other reasons. As much as the United States shuns the Euro-pean option for austerity, stimulus policies are not achieving expected results

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in this region either. In the context of a developed Western world in general agreement on economic policies, we have observed renewed commercial ani-mosity and foreign exchange controls by the United States empire, expressed through various FTAs with countries on the western side of Latin America and through the currency war with China. The United States does not favor ambitious economic integration projects. It will continue to defend free trade, reorient itself towards the Pacific sphere, and categorically rule out any reor-dering of the international monetary system.

Amid the downfall of the European model on the one hand, and the collision between the U.S. and Chinese empires on the other, no coordinated solutions have appeared, as expected by experts of the Financial Commission on the Economic Crisis, convened by the U.N. in 2008. During this period of “every man for himself,” Latin American countries have emerged, thus far, virtually unscathed from the first cycle of global economic recession, although they are not exempt from the backlash of a relapse, nor from a “financial tsunami” of Western capital interested in the promise of stability and prosperity that Europe can no longer assure. Amid the concern for staying “afloat” and the opportunity to assert ourslves as vital components of a new emerging world order, Latin American countries have been testing the concept of integration in many different ways, from aspiring to consolidate an intraregional trade zone in order to offset the decrease in exports to the North, to the beginnings of eventual productive complementarity, to the efforts directed toward finan-cial integration synchronized with the needs of the real economy and of our own peoples.

In this article, we will look back on the crusades and crossroads of European integration, and go over lessons and experiences which, interpreted from a dif-ferent dialectic, could serve to strengthen Latin America’s own experiments with integration.

Origins, Developments, and the Toll of European Integration

Original agreements and their limits: Trade and production policies

The origin of the European Union can be traced to the first commercial agree-ment between productive sectors essential to national development: the Treaty of Paris of 1951, which established the European Coal and Steel Community in 1953. The former European Economic Community (EEC) was established based on a customs union proposed by the Treaty of Rome in 1957. One of the Community’s first implemented policies was the reduction of customs duties in 1959, moving toward the total elimination of intraregional tariff rates and the establishment of a common external tariff in 1968. By then, the European Common Market, the first symbol of the region’s integration, had been born. However, this project for facilitating trade differed from the contemporary ap-proach to free trade, in the sense that it was focused on the bloc’s intraregional

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operations, maintaining a primary, all-encompassing concern for the produc-tive performance of the Union. Thus, the Common Agricultural Policy (CAP) was born in 1962, which continues to be the most powerful of the European sectorial policies 50 years later despite the many reforms it has undergone.

Initially conceived of as a joint tool for improving agricultural production and ensuring Europe’s security and food self-sufficiency, the CAP subsequently boosted the economies of the Mediterranean countries. In its first two decades, the policy implied a huge joint effort in budgeting, and represented two-thirds of the E.U. budget. (This expenditure has multiplied a thousand fold since the beginning of the EEC 1).Today, it accounts for more than a third of European Union expenditures.

Graph 1

CAP budget (in billions of euros) and its relationship to the Total Community Budget (%)

Note. From “Cohesion Policy: Strategic Report 2010 on the Implementation of the Programmes 2007-2013” by the European Commission, 2010, Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions.

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Economic integration: European retrospective, Latin American horizons | Manuel Cerezal

Based on a triple incentive, the CAP favored the construction of the Common Market which eased access for producers, sustained rural incomes confronted with urban expansion, and ensured reasonable prices for consumers. In par-ticular, to ensure a uniform price level among the member states, three types of prices were established: a target or guide price, below which the European Community intervened, a guarantee or intervention price that ensured a min-imum rate for farmers selling their products on the market, and a threshold price, set above the level of global market prices, which would be decreed as an import tariff in order to increase the price of these transactions and thus protect the intraregional market. Producers also received an export subsidy that allowed them to sell off their production despite overpricing.

This policy of multiple subsidies enabled the European Union to reach its ob-jective of self-sufficiency in the 1980s, after which it had to face the question of how to intervene in the almost permanent surplus of agricultural products, as well as how to mediate the criticism that erupted over the CAP expendi-tures. A set of quantitative measures then began to emerge: for example, the introduction of quotas in dairy and cereal production in 1984 and the set-aside of farmland in 1988. These measures reduced surplus production but did not reduce the CAP budget, which increased substantially due to the need to ad-dress the Greek (incorporated in 1981), Spanish, and Portuguese (both incor-porated in 1984) economies. Furthermore, besides the internal pressures due to budget problems, the CAP was also criticized abroad. In 1986, at the time the Single European Act (SEA) was passed,2 pressures intensified to reconcile the conditions for international trade, which were being discussed in depth at the GATT (General Agreement on Tariffs and Trade) Round in Uruguay. The CAP ended up being completely revised in 1992 (Loyat & Petit, 2008), subse-quently favoring a direct subsidy system intended to offset the effects of price decreases on income in the rural sector.

While transitioning from a model which, if not focused entirely on produc-tion, was at least quite attentive to it, towards market-oriented agriculture, the European Community gradually abandoned the original foundations of its productivity. The consecration of the “Union” by the Maastricht Treaty was actually the beginning of an apparent penetration of neoliberal principles into the essence of the integration project. And if the CAP initially represented the EEC’s concern for balance and equity in its construction, this concern sharply contrasted with the cruel lack of harmonization of the industrial poli-cies within the European Union, one of the major explanations for the current resurgence of a polarized Europe.

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Graph 2

Development of Trade Balances of the Major Eurozone Countries

Note. From “La zone euro et l’économie française: Analyse des effets de la surévaluation de l’euro” by Jacques Sapir, 2011, CEMI-EHESS.

Another current problem lies in the fact that the comparative advantages that Europe enjoyed during the “30 glorious years” have been vanishing with the technological and industrial booms in Asian countries. The outcomes of dein-dustrialization in Europe currently impede the reconstruction of an integrated productive web similar to that of the last century. The agricultural situation has also become more complex with the rise of certain emerging powers. We could most certainly attribute the inconclusion of the Doha Round to the Eu-ropean temptation to return to protectionism.

The crusade of the Monetary Union: EPU, EMS, and EMU

With the end of World War II, Europe found itself under reconstruction in a context that simultaneously demanded importation and mass production. Nev-ertheless, given the relatively low foreign exchange reserves, foreign trade was threatened by imminent constriction.

The solution was to implement a multilateral system of reciprocal financing of commercial activities: the European Payments Union (EPU). Hart-Lands-berg (2010) recalls that the countries of the former Organisation for European Economic Co-operation (OECD) granted themselves credits on the marginal

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balances of their commercial activity through the Bank for International Set-tlements in Basel. If a country accrued a deficit of less than 20%, they granted it a credit on the entire deficit. If it exceeded this threshold, the country had to pay off increasing percentages of its balance in dollars or gold. The sur-plus producers whose margin was less than 20% of their allocation converted this surplus into a credit for the Union. If they exceeded this 20%, they drew 50% of their surplus in dollars, using the remainder as a credit to the Union. If a country’s amount of surplus exceeded its allocation, the administrative Council of the European Union would decide what course of action to pursue. The absence of coercive measures in the case of excessive enrichment from surplus producers led to numerous adjustments.3

The EPU met the objective of increasing intraregional trade, achieving a growth rate of over 60% of the industrial supply in its 12 years of existence. It also contributed to substantial improvements in the foreign exchange reserves of the region as a whole. However, this objective was abandoned in the late 1950s due to pressure from creditors, who demanded the free convertibility of those assets to other world currencies. The cessation of this system coincided with various policies that increased liberalization of foreign trade. With the demise of the regional mediating entity, surplus producers had no reason to worry about disturbing the trade agreements. Asymmetries which had been frowned upon by the former system were thus tacitly legitimized.

The second important moment of monetary integration began with the cre-ation of “the snake in the tunnel” system in 1972, a mechanism intended to contain fluctuations in the region’s currencies within a range defined by con-sensus. The context of global liberalization of exchange rates, marked by the abandonment of the Bretton Woods system 1 year later, unleashed a series of crises that led to fluctuations in various currencies, as well as repeated ad-justments to the established ranges. This led to the abandonment of the snake in the tunnel system, but the oil crisis provoked the creation of the European Monetary System (EMS) and the reaffirmation of the European Currency Unit (ECU) in 1979.

After various adjustments to the margins of fluctuation and to the internal parities, the EMS entered a period of low variability from 1983 until 1992. Despite fluctuations in 1992 and 1993, 11 countries estimated that the scant need to adjust parities within the EMS permitted them to definitively fix these parities in order to implement the ECU in 1999 (Du Bois, 2008). The imple-mentation of the single monetary unit, endorsed by a 1992 study by Emerson, Gros, and Italianer, guaranteed savings through monetary and exchange rate policies and favored the consolidation of the global commercial sphere and stability in economic growth. This pro-economistic illusion consolidated the hitherto vague sense of belonging for citizens of the European Union.


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European authorities were always more sympathetic to the hypothesis that fixed exchange rates were more favorable for commercial expansion. In fact, some of the studies carried out between the 1980s and 1990s (for example, de Grauwe, 1987; de Grauwe & de Bellefroid, 1989) showed that the respon-siveness of trade to the volatility of short-term exchange rates was relatively reduced, and that the susceptibility to a prolonged exchange rate slide or “mis-alignment” was indeed significant. Ironically, after 13 years of fixed parities, the current productive and labor structures of the various national economies require adjustments to the original parities of domestic currencies with the euro. To this problem we must add the euro’s misalignment against the dollar, which many economists criticize by pointing out how overvaluation has come to haunt certain economies of the region, and not necessarily the “weakest” ones (Sapir, 2011).

The problem originates in the formula for macroeconomic convergence estab-lished by the Maastricht Treaty, which has subsequently become the iron law for the Monetary Union. Each country would have to maintain its inflation rate within 1.5% of the average of the three lowest inflation rates of the region, its public deficit below 3% of GDP, and its public debt below 60% of GDP. Even in a scenario in which these standards have been met, labor remunera-tions would not have coincided with the propositions and considerations of the founding technocrats. The following graph not only reflects the impact of the adjustments made in light of the 2008 crisis, but also the habit of German wage restraints that explains the supremacy of this nation’s economy.

Graph 3

Remuneration Index: Real Unit Labor Cost

Note. From AMECO, 2012, Research on Money and Finance.

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For monetarists, controlling inflation seemed to be the only goal when design-ing the functions, or rather the function, of the European Central Bank: price stability. But one of the founders of the euro, the Frenchman Jacques Delors, underscores the negligence committed in the creation of the eurozone:

In 1997, after having left the Commission, I proposed, in the spirit of the Delors Report of 1989, to create, along with a monetary sphere (consisting of the independent Central Bank and a stability pact), an economic sphere to coordinate economic policies. If such balance had been achieved, the European Council would have investigated the situation in Greece and the disturbing increase of private debt in Spain, Ireland, or Italy in a timely manner. This could have been avoided. (…) Another lesson to be drawn is that a central bank should have two guiding principles: price stability and control of public debt. It is this second principle which has been abandoned since 1999 (Delors, n.d.).

We could also add that it would have been worth the effort to consider growth and employment as central objectives, now present in the current consider-ations of the U.S. Federal Reserve.

Structural funds: Fighting against socioeconomic inequalities and territorial asymmetries

In order for this critical analysis of the European integration process to be complete, we need to touch on the topic of the Cohesion Policy, which contin-ues to exist although not by the appropriate arrangements or in the appropriate dimensions. Since 1955, political will has “focused on the underdeveloped regions of Europe,” an intention that has been expressed since the Treaty of Rome in 1957 as one of the principal guidelines in the creation of the Euro-pean Common Market. In 1958, two funds were created: the European Social Fund (ESF), which still exists today, and the European Agricultural Guidance and Guarantee Fund (EAGGF), later absorbed by the CAP. In 1969, the Di-rectorate-General for Regional Policy was created as the responsible entity for allocating these resources within the European Commission. In 1985, the European Regional Development Fund (ERDF) was created, whose purpose was to strengthen economic cohesion and to correct regional imbalances. The European regional and territorial zoning policies were consolidated into a Co-hesion Policy which was enforced during an initial period between 1989 and 1993. During its second period (1994-1999), the structural funds were already receiving a third of the European Union budget. These funds serve three gen-eral purposes:

1. Convergence: to develop disadvantaged regions, identified as those that show a per capita GDP below 75% of the European average. To this end, declining urban and rural industries were prioritized. 78.9% of funding was allocated to approximately 84 regions located in the Mediterranean countries, Ireland, and Eastern Europe.


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2. Competitiveness and Employment: to modify and modernize education, training, and employment policies in European regions. This goal rep-resents 20% of the budget and operates in 168 regions.

3. European Territorial Cooperation: to promote cooperation between re-gions and territories in central Europe. This goal only receives 1.1% of the budget, which is intended primarily for rural and border regions.

In addition to the ERDF, which continues to be the principal structural fund for the cohesion policy, the European Social Fund (ESF) was also created with the goal of improving employment in the European Union, and thus supported the first two objectives. For its part, the Cohesion Fund supports the regional objective of convergence by funding transportation networks and environmen-tal protection. The 300 billion euros allocated to funding in general for the 2007-2013 period are divided among these three large funds that serve differ-ent countries and regions. Today, this structural policy accounts for 35% of the European budget for the period specified.

European reflection on the nominal and practical convergence of its socio-economic indicators in order to implement the Cohesion Policy has resulted in some interesting conclusions regarding geographical and institutional ap-proaches. For example, the Union has decided that European reflection must occur at the regional level for maximum efficacy. From its supranational van-tage point, the European Commission has opted to communicate with regions, favoring the transfer of resources towards local entities in order to counter socioeconomic and territorial economic disparities, while simultaneously en-suring that national policies are not contradicted. The European Union thus manages three scales (using the Nomenclature of Territorial Units for Statis-tics, or NUTS) (Charlot, 1997): NUTS 1 with 78 regions, NUTS 2 with 211 regions, and NUTS 3 with 1,093 regions. This permits three levels of anal-ysis for considering disparities, which translates into greater precision. The most common tool for tackling disparities has been regional GDP, or GDP per capita, broken down by regional averages, with the obvious limitation that well-being is not measured. The regional unemployment rate is considered as a key variable in order to not overlook the issue of employment. More recent-ly, research has been undertaken and innovations have been implemented to better characterize the potential competitiveness of the regions.

In its assessment for the 2000-2006 period, the European Commission report-ed:

The countries that benefit most from the Cohesion Fund have experienced the greatest change during this period. In 10 years, Spain, Greece, and Por-tugal have caught up by a third of the parity level. Ireland’s GDP has in-creased from 64% to 119% of the European Union average between 1988 and 2000. One can still distinguish three types of countries: the eight poor-est member States whose GDP per capita is around 40% of the 25-member

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E.U. average (Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Czech Republic, and Slovakia), an intermediate group of countries positioned be-tween 71% and 92% of the E.U. average (Cyprus, Spain, Greece, Portugal, and Slovenia), all of which still require structural support, even more so at this current point in time, and the rest of the member States, with an average GDP per capita close to 115% of the E.U. average (European Com-mission, 2010).

The funds have not only been used for structural development; they have also contributed to offset the absence of a European social policy. They represent practical proof that one may act systematically on economic factors, social realities, and territorial conditions at the same time. In short, they embody perhaps the clearest expression of the founding members’ solidarity with new members, an alliance that seems very fragile in the current context of the Greek crisis. The reason that the Cohesion Policy has been unable to move beyond expectations and better serve those of the Union lies in the simple fact that it was conceived and has always been managed as a compensatory tool. I consider it compensatory because the funds have served to cushion the impact of liberalization and competition within the European internal market. Also, they have sought to reduce gaps maintained by the absence of common social and industrial policies or by the reform of other policies, such as the CAP. By focusing on the establishment and protection of the euro, European authorities have obscured the relevance of other actions that, when combined with other methodologies, could have become the central policy for overcoming asym-metries in European integration.

Contributions to the Latin American Dynamic of Integration

Premises and intuitions in action: The Sucre

It would be absurd to deny that, until recently, Europe used certain mech-anisms to control trade flows and the actions of public authorities regard-ing international balances. (The experience of the EPU clearly demonstrates this.) The debate over trade within the framework of the creation of the Sucre (Unitary System for Regional Compensation) began to focus on these control mechanisms, or at least recognized their importance, when considering the possibility of business management and a way to balance intra-Sucre pay-ments. Because the Sucre only requires liquidating surpluses or deficits that alter the initial allocations of Sucres for the respective member states, a cer-tain budget discipline would be directly rewarded by a net dividend savings.

Another innovative characteristic of the Sucre is the exchange rate system ad-opted in February 2010, an approach methodologically inspired by the ECU, but appropriate for the specific conditions of the ALBA countries. In the ab-sence of bilateral exchange markets among the Sucre nations, it would have been illusory to build a basket around a currency other than the dollar, like


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the case of Europe, in which one of the national currencies, the German mark, was used to build the ECU basket. The regional nature and the coherence of the Sucre unit are reflected in the composition of the currency basket, which incorporates each foreign currency according to its intraregional weight, mea-sured by the GDP of each member state and by its level of regional and inter-national trade.

Unlike the system of fixed exchange rates that was established for the ECU, the Sucre opted for a system of flexible exchange rates, updated daily, so that a gap would not form among the bilateral exchange rates between currencies and their exchange value against the dollar. This does not impede distinct or automatic adjustments in the Sucre exchange system in the event of a consid-erable devaluation—a discrete jump in the value of one currency with respect to the others, as in the case of Venezuela in January 2010—or of the progres-sive appreciation/depreciation of the basket currencies that fluctuate, such as the córdoba and the boliviano. As a result, the exchange rate system can be closely monitored, given its frequent recalculations and possible adjustments, enabling authorities to keep its value stable enough to generate the maximum possible confidence among the agents who employ it.

The third element to consider, at the root of the member countries’ severe structural economic dependence on the rest of the world, was the need for periodic convertibility of the Sucre to foreign currencies that acted as the means of international payment. By allowing the Sucre countries with trade surpluses to liquidate their surpluses against “hard currencies” each half year, the Regional Monetary Council (RMC) facilitates the ability of each nation to honor foreign trade payments outside of Sucre, resuscitating the region’s trade balances. Ideally, in the future, what would actually occur is that the surpluses produced by certain countries in the region would be reinvested in Latin America. To achieve this, the creators of the Sucre included an adjust-ment mechanism that would allow the governing body, the RMC, to set a limit above which the surplus producers would have to reinvest part of their surplus in the Reserves and Commercial Convergence Fund (RCCF). The most radical option would be to compensate local currencies by transforming a country’s entire surplus into direct investment in deficit producers.

We can observe here the beginnings of the formation of a common currency with the objective conditions that characterize its operations. What stands out is the attention given to reviewing the bases of J. M. Keynes’ proposal for in-corporating the bancor into the Bretton Woods system and to applying the les-sons from the initial experiments in Europe. However, the urgent need to con-solidate intraregional trade, a goal that ALBA has not prioritized as Europe did the 1950s (less than 5% of ALBA’s total trade is intraregional),5 requires considering potential practices that could increase this trade. We saw how the European Community systematically prioritized the quantitative growth of its intraregional trade at the expense of the quality of its economic integration

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(i.e., combating inequalities). Other experiments in common markets, such as our own Mercosur, suffer from similar trajectories. How, then, does one pro-ceed to shape the most highly equitable commerce possible within the heart of ALBA?

The transformation of commerce, beginning with production

In order to demonstrate our commitment to commercial integration without falling into the trap of obsessing over trade liberalization at any cost, it is es-sential to pause and reflect on the production bases of the member states. We could even consider the development model described below. We must keep in mind that industrialization has already been undertaken by both western and eastern countries that currently dominate international trade with com-petitive advantages that are hard to balance out. ALBA will most likely not prosper by imitating procedures implemented in industrialized countries or by following a cookie-cutter plan for development: Industrialized countries al-ready occupy these ladder rungs, so to speak, if they have not already “kicked the ladder away” (Chang, 2008).6 Nor would it be a matter of falling back on a policy of import substitution industrialization (ISI), although this would prove to be both relevant and useful to the ALBA countries for the consolidation of their internal market.

Our argument simply points to the consideration of other comparative ad-vantages, not only related to the production of commodities, but also from a broader development perspective, vindicated by the ALBA slogan of “coop-erative advantages.” We shouldn’t turn away from the focal points that ALBA has focused on from its inception, which Hart-Landsberg calls the key forc-es behind development: health care, education, energy, and food production, which represent intraregional needs, although they may be contrary to prevail-ing economic models. The region can only benefit by focusing on these im-portant areas, demonstrated by the increasing levels of trade driven by various intraregional, though still bilateral, agreements, such as those between Ven-ezuela and Ecuador, or between Cuba and Venezuela. In fact, intraregional trade increased by about a factor of six between 2004 and 2011, confirming the relevance of directing funding towards education and health care as pillars for the socioeconomic development of the member states–the original pledge of the Bank of ALBA. Therefore, our next step should be consolidating these central priorities.

Regarding food production issues, conditions are favorable for increased inte-gration and complementary production. For example, there is the possibility of increasing urea production in Venezuela in order to export this product to its partners, and importing the food produced by these partners. Another example is the regional adoption and improvement of Cuban technical agri-cultural expertise. Beyond their ability to consolidate the region as an agri-cultural power, the abundance of natural resources in Latin America is also an extraordinary source of renewable energy that could convert ALBA into


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a real laboratory devoted to the development of biotechnology and pharma-ceutical science, if combined with the necessary investment in research and development. Exempt from direct appropriation of their biological potential by the U.S. via FTAs, the ALBA countries could take advantage of the sit-uation from a communal, complementary, and necessarily sustainable point of view, producing medicines for the region. As economies rapidly evolve under the driving force of social services, wide areas of development open up for exploration in the fields of telecommunications and tourism, as well as in the social services already mentioned. Through these new possible areas for development, potential innovations could be tested and could offer the pros-pect of new options not already available, and could incidentally change the structure of our economy.

With these prospective examples, we want to establish the relevance of consid-ering the region’s development beyond an exclusively commercial approach as well as broadening our perspective regarding the challenge of industrial-ization, approaching it from a vantage point different from that of Europe or Asia, for the simple reason that the development paths of those regions no lon-ger exist. Some regional economists like Wexell (2011) have begun to analyze these possibilities. Similar discussions are now taking place within Unasur’s Economic and Finance Council.

When it comes time to take action, we need funding capable of adapting to the conditions of different sectors, through flexible interest rates and securities. Perhaps the most useful way to improve financing is to prioritize relations that would advance economic solidarity and foster cooperation instead of compe-tition. To reach this goal, it would be perfectly appropriate to distinguish be-tween the norms usually applied to large production units from those applied to small ones, which require incentives in the form of information, simplified procedures, and preferential financing. This approach would also lead to a qualitative improvement in commerce, especially concerning the fate of small production units and those that make up the informal regional economy and that do not even figure into national commerce or GDP.

Of funds and banks

The most important lesson that structural funds can teach us is undoubtedly how to design a system with social, economic, and territorial dimensions that translates into an accurate and reliable model of common national and region-al interests. This very task is being carried out by ALBA, and will also be nec-essary within Unasur. In order to synchronize economic plans, the presidents of ALBA petitioned for a projection of trade and production resources of their countries at their last summit.

The European approach of directing support from the supranational level to-wards prioritized regions in certain countries could have a revolutionary im-pact in Latin America, for example, regarding applied solidarity. The Bank

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of ALBA, the Sucre’s FRCC, and the Bank of the South could form the core of a financial establishment concerned with regional challenges that, until now, have made physical and productive integration difficult. Border integration programs, policies for territorial organization along the basins of the Rio de la Plata, the Orinoco, or the Amazon Rivers, supranational productive chains that challenge traditional extractivism as a model for regional economic insertion into global capitalist markets: All these repre-sent challenges that Latin America’s sovereign funds and banks must face.

Another lesson we can take away from the European experience is the un-derstanding that it is better to invest early in preventative actions than to wait until an emergency situation arises and to react to circumstances. The fact that the European Financial Stabilization Mechanism (EFSM) has re-quired more capital during the past 6 years than the structural funds budget should serve as a learning experience for Latin America. The main differ-ence between the European and Latin American experiences should be our region’s rejection of a reactionary attitude towards funding and banks: Rather than adjusting inequalities, we must directly attack them. The les-son we can learn from the European experience lies in defining common objectives that distinguish between the use of funds for national devel-opment versus intraregional development. Instead of development banks that focus on country strategy, such as the Inter-American Development Bank (IDB) and the Andean Development Corporation (ADC), we should focus on regional strategy based on common development objectives. To achieve this goal, it would be useful to systematically work on co-financing projects between banks and nation-states in order to optimize banks’ credit portfolios and simultaneously ensure that states receive financing that is in line with their public policies. We must remember how the European Bank for Reconstruction and Development operates, only financing up to 50% of projects proposed by the member states, thus making co-financing its golden rule.

Considering various countries’ deep reluctance to allocate part of their in-ternational reserves to these projects, we should remember that proposals such as the Bank of the South or even the Fund of the South–referred to in Ecuador’s proposal for the New Regional Financial Architecture–repre-sent mechanisms of mobilization that actually require a small fraction of reserves in order to combat international financial fluctuations. The coex-istence of various institutions working towards the current goal of Latin American integration can sometimes take precedence over the definition of a clear development path. Situations requiring quick solutions in order to avert the consequences of a new recessive cycle tend to get bogged down by the dilemma between opting for a New Regional Financial Architecture and consolidating, if not reforming, the existing financial architecture. Per-haps it would be worth mentioning here a final lesson from the European experience, derived from the history of the Monetary Union: the capacity


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to discard instruments after they have served their period of usefulness, thus allowing for corrective adjustments and greater innovation–an ability put to the test today in the context of the euro.

In summary, the European Union has been gradually shifting away from is-sues of production, migrating towards an increasingly “macro-economistic” perspective of integration, deemphasizing the national productive bases, and leaving production to the whim of individual nation-states and their structural funds. The Union prioritized the overall balance of the region, outlining the ideal conditions for the development of the euro. After having observed the situation in Europe, we should reconsider the equilibrium between the objec-tives of convergence and cooperation, and the bias towards macroeconomic convergence. For Latin America, a region whose integration is still in its initial stages, the fact that we are not yet committed to a specific path like Europe allows us to experiment and refine our model.

In a recent article, I argued along with Ricardo Molero and Alberto Montero (2011) that European integration has taken on a Hegelian form. According to Hegel, the dialectical movement of history should consolidate the “Spirit,” an ideal and pure state, whose exceptional consistency would not tolerate the possibility of denial. The “Spirit” of the European Union, the great idealistic crusade of the last 20 years, has been the euro, which currently finds itself at a crossroads. At this juncture, it remains to be seen how the euro will respond to the lesson of humility that history is offering it. In another dialectical logic, more akin to that of Marx’s conception of history, Latin American integration should synchronize its production model with the social relationships that it aims to consolidate, starting with the objective conditions and concrete ma-terials that characterize our commerce, our current system of production, the asymmetries inherent to this system, and our dependence on the dollar.

In Europe, supranational entities focused on coordination and various political matters have coexisted (Eurofin, Euro Group, the ECB, etc.), overlapping in their functions and contradicting each other. Furthermore, they have not been able to moderate the influence of certain nations’ unilateral interests. These conflicts within supranational entities have even justified the recent inclusion of the IMF in the troika in order to save Europe from its monetary crisis. These contradictions represent important lessons for the consolidation of newly de-signed Latin American programs, such as the Economic Council of ALBA or Unasur’s South American Economy and Finance Council. First, we need to coordinate cooperative analysis of national policies, respecting differenc-es of opinion and sovereignty, but simultaneously monitoring overly strong divergences and detecting opportunities for complementarity. Second, we as-sume that each integration project, no matter how small, can help consolidate compromise and agreement in order to bring about change through larger en-tities (from ALBA or Mercosur to Unasur and Celac, for example). Finally, we need to unite and resist the turmoil within the financial economy: Beyond

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the objective of preventing or counteracting the effects of the crisis, we must refocus integration objectives on the real economy; that of production, labor, and Good Living, addressing Aristotle’s challenge of how to best “organize” this “house,” Our America.

Footnotes

1. To provide a reference point, the amount the European Union budget allocates to the CAP is still 20 times smaller than the U.S. federal budget.2. The Single European Act was signed in 1986, seeking to convert the European Economic Community (EEC) into the European Union: It aimed to improve the com-mon market, whose goal had been the free movement of goods, persons, services and capital.3. Hart-Landsberg explains that in order to prevent Germany from exhausting its quo-ta, the Council of the European Union multiplied its allocation by five. Conversely, given that Belgium was extremely productive, fee increases also had to be negotiated in order to avoid jeopardizing exchange reserves in the Union’s hard currencies.4. In Unasur, intraregional trade accounts for approximately 20% of total trade, in which Brazil and Argentina are large contributors: Together, they account for over 60% of intraregional trade.5. Ha Joon Chang’s (2008) metaphor of “kicking away the ladder” refers to the idea that after developing under certain commercial and financial conditions, developed countries invalidated these processes for other countries.

References

AMECO. (2012). Research on Money and Finance.Cerezal, M., Molero, R., & Montero, A. (2011, January-June). De la ‘impertinencia’ de la Alianza Bolivariana de los Pueblos hacia la pertinencia de otra integración re-gional: Aportes del S.U.C.R.E. La Gaceta Económica 1(1).Chang, H. J. (2008). Kicking away the ladder: Development strategy in historical perspective. London: Anthem Press.Charlot, S. (1997). Nueva economía geográfica y crecimiento endógeno: ¿Qué reno-vación para el crecimiento regional? Lille: ASDRDLF, XXXIII Encounter.Du Bois, P. (2008). L’histoire de l’Europe monétaire, 1945-2005: Euro qui comme Ulysse…. Paris: PUF.De Grauwe, P. (1987). International trade and economic growth in the European mon-etary system. European Economic Review 31(1-2), 389-398.De Grauwe, P. & de Bellefroid, B. (2003). Long-run exchange rate variability and international trade. In S.W. Arndt & D.J. Richardson (Eds.), Real-financial linkages among open economies. Massachusetts: MIT Press Classics.Delors, J. (n.d.). Interview published in Le Monde. Retrieved October 19, 2011 from http://www.lemonde.fr/sujet/bee2/cooperation-renforcee.htmlEmerson, M., Gros, D., & Italianer, A. (1992). One market, one money: An evaluation of the potential benefits and costs of forming an economic and monetary union. Ox-ford: Oxford University Press.European Commission. (2010, March 31). Cohesion Policy: Strategic Report 2010 on the implementation of the programmes 2007-2013 (Communication from the Com-mission to the European Parliament, the Council, the European Economic and Social


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Committee and the Committee of the Regions). Retrieved from http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2010:0110:FIN:EN:PDFHart-Landsberg, M. (2010, December). ALBA and the promise of cooperative devel-opment. Monthly Review 62(7). Retrieved from http://monthlyreview.org/2010/12/01/alba-and-the-promise-of-cooperative-developmentLoyat, J. & Petit, Y. (2008). La politique agricole commune (PAC): Une politique en mutation. Paris: La Documentation Française.Sapir, J. (2011, April 11). La zone euro et l’économie française: Analyse des ef-fets de la surévaluation de l’euro. Paris: CEMI EHESS. Retrieved from http://www.google.com.ec/url?sa=t&rct=j&q=&esrc=s&frm=1&source=web&c-d=1&ved=0CCYQFjAA&url=http%3A%2F%2Fmpep59sud.hautetfort.com%2F-media%2F01%2F02%2F2188154526.doc&ei=d7W3UNKeJpP08ASR2oCABA&us-g=AFQjCNHFxGciyId0ZBiLLyMmvBUvyJy0VQWexell, L. (2011). Perspectivas de la integración productiva en América Latina. Re-vista de Economía Política Latinoamericana, “Tiempos de Crisis” 2(3).

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NEOLIBERAL CRISIS AND THE RECONFIGURATION OF THE STATE: ECUADOR AND SOUTH AMERICAN HETERODOXYFranklin Ramírez Gallegos

99%. vs. 1%

The crisis of neoliberal capitalism is rooted in nations that were considered stable centers of the world economy until recently. The need to stabilize finan-cial markets has propelled the eurozone into recession and the United States into decelerated growth. Although management of the crisis has entailed fiscal orthodoxy and budgetary discipline from the outset, rating agencies—spokes-persons for transnational finance and commissioners of global economic pol-icy—have continued to demand increased austerity and greater control over public debt. Within the last few months this rationale has become inflexible, even in cases in which the State’s historic position seemed to thwart the mar-ket’s administration of the public agenda.

Indeed, the management of the eurozone crisis has been marked by succes-sive threats from Standard & Poor’s (S&P) to reduce members’ credit ratings for public debt. According to financial markets, neither budget control poli-cies nor drastic debt control measures (which in Spain provoked a thoughtless constitutional reform setting a limit on public administration debt) seem like appropriate measures given the situation. Thus, after the European Summit in December 2011, during which a series of institutional reforms were adopted to reinforce big banking’s leadership over the member economies, S&P down-graded the credit ratings of nine European countries. France and Austria lost their AAA credit rating and Italy was downgraded to Colombia’s and Peru’s level. Ironically, in its statement dated January 13, 2012, S&P (which awarded the highest credit rating to the toxic assets that caused the financial meltdown of “Black September” in 2008, according to Paul Krugman) indicated that the “[eurozone’s] reform process based on a pillar of fiscal austerity alone risks becoming self-defeating….”

In this context, amidst the rise to power (without popular consent) of Italian and Greek technocrats in alliance with banking powers, and the ardent rejec-tion of any kind of democratic management of the crisis, France and Germa-ny sided with the stock market and condemned and later blocked the former Greek Prime Minister’s attempt to submit a bailout plan to referendum. All

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this suggests that the neoliberal bloc’s class power will consolidate itself in the immediate future. This bloc represents the alliance among leaders of the glob-al financial sector, banking managers and professionals and, at a deeper level, the parties aligned with a budget discipline ideology. Under this hegemony, the imperative to control the public deficit will continue to stifle any active policy by the public sector and will shift the costs of the crisis to the masses.

The masses, however, have already shown their frustration with current poli-tics. Encouraged by the Arab Spring, many of the social protests held in vari-ous parts of the world—from the indignados in Madrid to the demonstrations in Tel Aviv, from the Chilean students’ protests to the Occupy Wall Street movement in lower Manhattan, and even the demonstrations in 951 cities on October 15, 2011—not only point to the globalization of popular unrest against the effects of the crisis and its management methods, but also the overt opposition to power blocs that have guided the current regime of flexible accu-mulation since the early 1970s: neoliberal capitalism that dominates the globe.

The occupants of Liberty Square, one block from the Federal Reserve Bank in New York, have expressed it succinctly: “We are the 99%.” The remaining 1% dominates corporate financial power and, simply put, consists of the richest of the rich: “government by organized money,” to evoke Roosevelt’s description of the plutocracy that opposed his policies during the Great Depression of the 1930s. Sidney Tarrow (2011) notes various resemblances between Roos-evelt’s denouncement and the indignation of those mobilized in the Occupy Wall Street movement. Nevertheless, nowadays, in contrast to previous times, American political power has barely indicated any sympathy for the protest-ers, confirming its priority to protect the markets: “In his press conference last week, after acknowledging that he understands the anger of the protesters, U.S. President Barack Obama was quick to assure the financial sector of his continuing support” (Tarrow, 2011).

Occupy Wall Street’s retaliation against global corporate power, protestors’ demands for “real democracy now,” and Chilean students’ demands for free university education, funding sources other than private banks, and tax re-form1 combine to present a double challenge: on the one hand, confronting the fact that the financial system’s interests are in opposition to the masses’ needs, and on the other hand, recognizing that political power abandons the common good in order to represent bankers, creditors, and global specula-tors. Although the developing protests correctly apprehend the current global balance of power, we must be clear about the effectiveness of the resulting movements. They represent a set of struggles that, in general terms, are based on limited and defensive demands: Instead of moving forward and promoting progress, they focus on avoiding retreat and the loss of social gains amidst the systematic attack on the welfare state. They don’t aspire to exceed the limits set by the transnational, iron rule of financial capital (de Sousa Santos, 2011).

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This problem is often neglected while other issues are prioritized within a critical theory framework; for example, the positioning and administration of different leftist governments in Latin America. Looking beyond the inflated rhetoric that can evoke socialist ideals at times, we can see that the political arena in which these governments are established continues to be configured and controlled by the same global financial priorities that sustain neoliberal-ism. To acknowledge this does not entail calling off the political or intellectual search for specific alternatives to capitalism, as certain theorists imply. Rather, it entails focusing on the specific terrain of political struggle with ideological coherency, a condition necessary for the adequate consideration of the break-throughs, tensions, and contradictions that the region’s progressive govern-ments have experienced.

The New Era of the State in South America

After an accelerated crisis over the legitimacy of neoliberalism, South Ameri-can leftist governments are collectively attempting to reconstruct and redirect socio-political interventions that have contributed to the subordinate integra-tion of national territories to the global capitalist system based on speculation. The reconstruction of such dynamics has been catapulted to the national level through states’ political action. A fundamental characteristic of the neoliberal political project has been the dissolution of the state’s initiative and capacity to act, its responsibility to regulate the market, and its ability to lead civil society. Various South American countries oppose this neoliberal project by encouraging state involvement in social coordination—a development that has occurred in a more institutionalized or independent manner, depending on the specific case.

The very notion of “integration” implies, however, that a single state can’t refuse to be integrated (Is isolation a conceivable strategy?) and that each state acts within a certain international context. In fact, the minimal role of the state promoted by neoliberalism never meant that national policies were completely irrelevant; rather, they should support the dynamics of global fi-nancial accumulation. According to this perspective, in the midst of intense political unrest, the state is capable of employing strategies that lead to greater or lesser degrees of autonomy and sovereignty in relation to the global system (Thwaites Ray, 2008).

Although the democratic restructuring of the relationship between political and social sectors and the global financial system is easier to implement at the local level (“city-states,” “mini-governments,” “autonomous regions”), leftist governments have opted to dispute the global power structure by prioritiz-ing the reconfiguration of politics and the public sphere at the level of the nation-state, as well as by prioritizing the configuration of regional political spaces (for example, Unasur and Celac). A “neo-sovereigntist” strategy has been outlined that promotes (sub)regional integration while simultaneously

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asserting national autonomy. This strategy recognizes the dynamics of global interrelations while dissociating itself from liberal ideology, from a concept of integration defined by purely commercial interests, and from divisive forms of nationalism.

Thus, such governments are not receptive to the idea of “fully autonomous territorial regimes,” easily manipulated by neoliberal globalization, despite the incorporation of provincial and autonomist demands into their agendas for the reconstruction of state power. Rather, the political centrality of the state hinders fragmentation (previously observed in Ecuador and Bolivia) that used to be driven by regionally-based projects intending to forge “mini-republics,” adverse to the concept of the national political community. The political cen-trality of the state also reintroduces the concept of government by a central ap-paratus that maintains an active presence in all areas of the national territory. In fact, the central apparatus achieves legitimacy by affirming its agenda as a “national project.” After a prolonged cycle of economic and political liberal-ization, the state is now re-emerging as the sphere in which national interests are considered. Without an understanding of national interests, it would be impossible to imagine alternative approaches to regional insertion into the global system.

The return of the state has provoked the most virulent reactions from banking, business, and financial elites who had promoted deregulation, liberalization, and privatization policies, which, in turn, had undermined the state’s capacity to promote national development, market control, and redistribution of social wealth. Leftist sympathizers and sectors with autonomist inclinations have also criticized South American governments’ centralization approach to state restructuring. On the one hand, functionalists argue that everything that the state does contributes to the reproduction of capital, and on the other hand, anti-institutionalists who verge on a conservative anti-politics outlook argue that alternatives can only be constructed by autonomous community action.

The conservative criticism combines elements of liberalism—the imperative of minimal state presence to guarantee political non-interference in individual initiatives and market adaptability—with the transparent defense of a handful of private interests that flourished during the time of deregulation. The auton-omist criticism presupposes a sharp division between social self-organization and political institutionalism, and assumes that incipient social movements are always emancipative. According to this perspective, state politics can only contaminate social movements and reduce their capacity for utopian mobiliza-tion; therefore, the de-politicization of social movements is essential for pre-serving their potential for critical imagination (Saint-Upéry, 2004). However, to believe that only “community autonomy” can solve the dilemma of the struggle for state power and social transformation is an illusion that can lead to communities’ exclusion in the struggle for historic change and, moreover, can lead to a sort of feudalization of their struggles in micro-arenas of public activity (“NGO hegemony”).

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For their part, the functionalist critics see the state as yet another institution that reproduces the capitalist system, and therefore lose sight of the state as a contradictory social relationship and of the fact that its actions, its organiza-tional framework, and its very orientation are colored by this contradiction. Hence, state policies and institutions can appear as victories by the working and lower classes while actually contributing to the legitimation of a system that tends to perpetuate their subordination. The history of the social rights movement and the social welfare project, started “from below,” clearly reflects the complexity of the situation. To say then that the state is a mere contin-uation of the capitalist system is an abstraction incapable of capturing the contradictory dynamics of the interests that materialize within its realm and, above all, is a generalization that does not account for the historical disputes that can guide state action towards the defense of the majority’s interests, the production of collective goods, and confrontation of the exclusionist and dis-criminatory nature upon which capitalism is founded.

Such an orientation is always possible to implement: Although it may be con-ditioned by the nature of global accumulation, its potential depends on the ability of certain competing forces to embed their interests within the state, and to convert the state into a mechanism for social transformation. This goal openly questions the significance of political decisions made by national in-stitutions and elites responsible for governing the state in each society. We expand on this point below, starting with the governmental experiment of the Citizens’ Revolution in Ecuador during the period between 2007-2011.

The Reconfiguration of State Power

To say that the return of the state entails the political breakdown of global finance’s power and the disintegration of the “neoliberal consensus” is a gen-eralization just as imprecise as the idea that the state is an extension of the capitalist system. If our goal is to understand the general political changes currently in progress, it would be more pertinent to analyze the extent to which the state’s reappearance (a strategic priority for various progressive govern-ments in the region) manages to dismantle the neoliberal agenda’s imperme-able core and to determine whether the policies adopted by said progressive governments lead the way for alternative medium-term approaches to financial accumulation, to the current distribution of wealth, and to democratic forms of social coordination. Both questions depend, above all, on the ability of the new coalitions to direct the state structure with relative autonomy from neoliberal conglomerates and powerful private interests.

In this sense, the struggle to implement democracy is far from simple. The implementation of state autonomy requires a combination of progressive in-stitutional reforms and radical political decisions that unavoidably open lines of confrontation and conflict with the amalgam of national and transnational sectors that currently control public institutions. Hence, without popular sup-


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port, it would be difficult for civil governments initiating this struggle to make headway and eventually control state power. Nevertheless, beyond the need for the government’s hold on state power and the public’s support of such an initiative, governments must also be able to undo the political factors and regulatory frameworks that have given enormous veto power to certain domi-nant sectors—de facto powers—over the construction of a public agenda that responds to the majority’s interests.

Although the rise of these governments was preceded by a wave of protests and social resistance that had been chipping away at neoliberal hegemony since the mid-1990s,2 political resistance to orthodox neoliberal agenda was not established until the implementation and mandate of progressive govern-ment. During the last decade, control over the political system has not been the only process at stake; global reconfiguration of the “social power agenda”3

is also up in the air. One such strategy for global reconfiguration seeks to en-sure the viability of new national development policies driven by state agency. Thus, South American politics are currently in a state of upheaval and can be characterized by the conflicting actors and interests that shape them. These tensions can be observed in the very development of public management—pervaded by high- and low-intensity disputes—which has been molded in an environment of extreme political realism aimed at concluding this “pan-politi-cal” phase. The progression of electoral battles, visible especially in Venezue-la, Ecuador, and Bolivia, has been a key element in this process and has led to protests against certain governments that, in the case of the Andean countries, came to power without solid party structures and lacking real political and administrative experience.

The scenarios in which political struggles take place vary according to how consolidated governmental forces are. For governments that came into power with institutionalized political parties, the primary challenge has been nation-al economic development and distributive justice (equality, the war against poverty, etc.). They already occupied a familiar space within the party system and, although they seek to expand their influence, to incorporate new social sectors in the democratic process, or even to make certain institutional re-forms, they do not claim to (and do not need to) completely reconstruct the political regime. On the other hand, for the emerging organizational platforms that are based on the idea of transformation and that do not belong to more or less institutionalized political parties, the possibility of change has been presented as a conflictive dismantling of the “mode of social organization”4 in its entirety and, furthermore, as the disintegration of the political order which never accommodated them. These emerging political platforms have not only sought to avoid a societal crisis, but have also sought to reconfigure political space, expanding the possibility of their establishment and the consolidation of the changes that they promote. Crisis and change thus appear as eminently political problems that require an adjustment of current scenarios and power relationships. Hence, we can recognize the importance of the constitutional

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assemblies and of leadership in general as institutional mechanisms for the reconstruction of the current political community, the reconfiguration of the political order, and the design of a new organizational mode of social relation-ships. These changes would point to the reestablishment of the state’s ability to govern, and would counteract pro-market regulation during the organiza-tion of civil society.

In Ecuador’s case, beginning with the Constituent Assembly of 2007-2008 and the huge electoral setback this represented for the right,5 the national gov-ernment of the Citizens’ Revolution passed a series of measures that recon-figured social power, an event the people had been demanding for more than a decade. These measures included the end of the cooperative agreement that permitted the U.S. to have a military presence at the base in Manta, the ratifi-cation of an expiration date for the contract with the American oil company, OXY, the suspension of negotiation over the Free Trade Agreement (FTA) with the U.S., the outlawing of labor outsourcing, the declaration of the ille-gitimacy of part of Ecuador’s foreign debt, and the seizure of assets that had been ransacked by bankers involved in the financial crisis and the dollariza-tion of the economy, among other measures.

The political platform sustaining such decisions also supported the separa-tion of democratic political power from transnational spheres and the ruling classes (in the form of specific enterprising, banking, and family networks) that presided over the long process of economic liberalization, investors’ ap-propriation of control over public institutions, the weakening of the state, and the subordination of Ecuador’s foreign policy to Washington’s interests. If the above-mentioned platform had essentially responded to the will of the “new political class” during the first years of government, it subsequently focused on reconstructing the factors of power that would enable the reestablishment of the state’s central role in social coordination and the recovery of its author-ity over public policy in general.

There are four new approaches to governmental decision-making and institu-tional regulation that have been particularly relevant for the reestablishment of the state’s agency. First, a new course of action is being implemented that aims at strengthening national administration of a substantial portion of local surplus revenue coming from strategic resources income, without interference from global capital. The creation, empowerment, and/or capitalization of pub-lic companies in key sectors of the economy (oil, mining, public services,6 etc.) and the renegotiation of contracts with various transnational companies in order to increase the state’s share in revenues appear as fundamental ob-jectives leading to state (re)appropriation of resources with a high capacity to generate differential income.7 This strategy opposes neoliberal logic, which promotes foreign investment, free trade zones, and full mobilization of capi-tal, and is of great importance for peripheral states in the sense that it encour-ages increased autonomy (sovereignty) when facing global power.


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Second, a series of political decisions have been made aimed at disintegrat-ing financial capital’s decision-making hold over the national economy. After conducting a comprehensive evaluation of Ecuador’s foreign debt8 and declar-ing some tranches illegitimate, especially those relating to commercial debt, the national government prosecuted alleged suspects involved in fraudulent credit acquisition, declared a technical moratorium, and then defaulted on a significant number of its 2012 and 2030 bonds, removing 93% of the coun-try’s debt. The radical transformation of public management of debt incurred up until 2006 has implied a substantial reduction in the amount of pressure applied to the national economy and, more significantly, has reduced financial speculation revolving around this debt.9

Third, we must point out a series of measures directed at strengthening the state’s taxation policy and its tax collection capability, with an emphasis on progressive taxation10 and minimization of historic tax evasion by the elite and by large economic groups. The implementation of a tax reform has been placed at the center of the new public agenda since the very beginning of the Citizens’ Revolution, and has led to a 65% increase in tax revenue between the 2003-2006 and 2007-2010 cycles. The emphasis on tax policy transformation has meant a sharp increase in fiscal pressure,11 but seems necessary in a coun-try in which Treasury revenues depend largely on the state’s tax collection capacity.12

Finally, there has been institutional state reform aimed at recovering the cen-tral government’s capacity to lead, regulate, and control the whole of the public agenda, increasing the state’s presence in outlying territories (de-con-centration rather than decentralization), rationalizing the administrative ap-paratus, and regulating corporate arrangements within public institutions.13 Beyond the specificity of the new institutional order (which the Ecuadorian government has strongly emphasized),14 such reform has entailed, above all, an adjustment in the decision-making “community” and in the public poli-cy networks that shape the agenda of each sector. Thus, the neoconservative technocracy, linked to banking and corporate lobbying sectors that governed neoliberal reform in the 1990s, now finds itself removed from the key centers of state action. Similarly, it has been very difficult for non-governmental or-ganizations, international agencies, and consultancies that promoted the “new social issue” (equality, social policy, civilian political participation, sustain-able budgets, etc.) and that used to exercise significant decision-making au-thority over the public agenda, to conserve their political influence and, in many cases, to insert themselves into the new state management networks (Ramírez Gallegos, 2010).

Although the effects of these four approaches have been variable, they have generated better conditions for the implementation of the state’s centrality in determining the public agenda at the national level (and in some cases its legitimate intervention). The current democratic period thus constitutes an

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unprecedented moment during which the state is legitimized as the political actor responsible for initiating, and even resolving, in favor of the common good multiple negotiations with social and political actors who used to control sizable realms of public policy. While in a “balancing-of-powers” context, this would appear to be a process of building and rebuilding coalitions, blocs, and/or power networks, in a “state-agency” context, this seems to be an effective political and institutional disposition in order to achieve greater degrees of relative autonomy and decision-making capacity with respect to the ensemble of national, transnational, and local socio-political actors who have preserved their broad veto power over a wide range of decisions made by the democrat-ically elected civil power.

This scenario has led to several bouts of political conflict: The “dispossessed” are greatly upset by their removal from power; more so than the contents of the current public agenda can explain. The unions associated with banking, commerce and exports, large media corporations, and other private groups have been relentless in their denouncement of the Citizens’ Revolution. For example, new tax policy has led to various lawsuits between the government and the elite business sector: Transnational corporations have sued Ecuador before the International Court of Justice on more than one occasion. Large foreign debt holders have repeatedly speculated about a possible “flight of capital,” a new banking holiday, or the end of dollarization. Even though the government has managed to withstand some of these attacks and has demon-strated a high level of political-legal competence in court litigations,15 there are still cases pending in international arbitration courts for disputes associ-ated with investments; for example, the unresolved litigation with OXY Oil Company. Moreover, various actors have objected to general state reform that deactivates “special treatment” and “instances of institutional exceptionalism” that, according to the government, have reproduced privatizing and corporate forms of appropriation within the state.16 Despite these disputes, and despite a prolonged global crisis rooted in the logic of flexible accumulation and inces-sant pressure for the return of government deregulation, fiscal austerity, and legal security for major investors, the government’s newfound political control and greater degree of autonomy when facing global economic power have per-mitted the continuation of heterodox national development policy.

The Post-Neoliberal Transition

Between 2007 and 2011, the Ecuadorian nation and society made use of their state as a fundamental agent to implement an unconventional development strategy from the reconstructed territory of political sovereignty. In orthodox neoliberal discourse, globalization is seen as a historic moment in which na-tion-states lose relevancy, one of the principal conceptual differences between the new development strategy and the Washington Consensus agenda (Bress-er-Pereira, 2007). The dismantling of neoliberalism’s core implies specific courses of public action. Although many of these policies tend to coincide in


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various Latin American countries, one of the unique aspects of the process of change in Ecuador lies in the constitutionalization of a large part of the policies that diverge from the “old order.” Some of them are described below.

Reclaiming public planning: The Constitution, approved by 63% of the pop-ulation in September 2008, places planning functions at the center of the new development agenda and the “Good Living” framework.17 To achieve Good Living, a “decentralized system of participatory planning” was implemented to establish broad development guidelines and priorities for the budget and public investment.18 The National Secretariat of Planning and Development has become the central entity responsible for defining the agenda for social transformation and state reform.

The assertion of the State’s role as a promoter of development: Contrary to orthodox neoliberal discourse, which suggests that external savings and foreign investment are the main mechanisms for financing development, the current Ecuadorian government has prioritized domestic capital and national savings. To this end, the Citizens’ Revolution issued the Public Finance and Planning Code, which allocated funds for expanding civil society’s political participation and dismantled unfavorable regulations implemented in past decades that reduced public expenses to a minimum.19 The government also opted to repatriate and mobilize resources from the Free Liquidity Interna-tional Reserve (RILD), previously deposited in foreign banks, for productive investment and the activation of public banking. In a similar direction, the Ec-uadorian Social Security Institute’s (IESS) resources were used to create the IESS Bank and have financed strategic national projects and housing expan-sion policies. The use of national savings has been condemned by orthodox neoliberal discourse as a policy that undermines fiscal prudence. However, the Constitution establishes that fiscal policy cannot discourage productive invest-ment. Under this umbrella program, public investment grew to 11.7% of GDP (on average) between 2007 and 2011, which was more than double that of the 2001-2006 cycle (5.4%). In 2009, amid the great crisis in global capitalism, this indicator rose to a historic level of approximately 14%. The government’s countercyclical policy kept its potential negative effects in check. In summary, we are speaking about a cycle in which the enhanced ability of the state to promote and finance development appears to be a central factor in the growth of different sectors of the national economy.

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Graph 1

The Evolution of Public Investment By Period and Sector

Note. Ministry of Finance, Ecuador, 2010

Economic regulation: The government has proposed diverse initiatives for the regulation and control of the banking and financial sectors, in an effort to lower interest rates, attain the repatriation of its reserves in foreign banks, invigorate productive apparatus, and support public and cooperative banking. By reversing the financial deregulation agenda of the 1990s, the government is causing permanent confrontation between itself and the banking and financial sectors. A particularly significant action was the legislative decree that elim-inated the Central Bank’s autonomy and delegated the responsibility to set monetary policy to the executive branch. Orthodox neoliberal discourse has presented the independence of central banks as fundamental when attempting to win over the confidence of the market. Regarding the regulation of banking power, the Constitution also stipulates that shareholdings must be concentrat-ed only in activities linked to finance. In addition, an anti-monopoly law was enacted to control the power of the market, to penalize abuses by big business, and to empower the executive branch to define important retail pricing poli-cies in certain situations.

Trade policy and new regional integration: In a dollarized country unable to devalue the local currency—something that our neighbors did in the middle of the 2009 crisis—an active trade policy has emerged as the basic mechanism to invigorate domestic production and to prevent disparities in the balance of payments. The national government has attempted to outline an agenda for this purpose, although the process has not been easy. While rejecting the op-tion of an FTA with the U.S. and remaining unwilling to sign a similar agree-ment with Europe, the Ecuadorian government has tried to diversify its export


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products and the markets for these exports. Corporate pressure to reinitiate a free trade agenda with strong global economies has increased in proportion to corporate productive inertia (primary-exporter) and to the weak government responses to the enormous trade imbalances.20

Amidst the difficulties of outlining an active trade policy, the government has prioritized expanding the spectrum of Ecuador’s geopolitical relations and the acceleration of regional integration processes led by Brazil, Argentina, and Venezuela. The national government has joined attempts to reinforce these processes: In addition to strategic agreements with Venezuela and project fi-nancing with Brazil, China, Iran, and Russia, Ecuador actively promotes Una-sur, whose headquarters is located in Quito, and the Bolivarian Alliance for the Peoples of Our America (ALBA). Finding itself between the international system’s political realism focus (proximity to Brazil) and the counter-hege-monic strategies employed to transform this system (the ALBA axis), the Cit-izens’ Revolution has implemented pragmatic measures, such as expanding Ecuador’s global consular presence, in addition to radical decisions, such as the country’s renunciation from the Convention on the Settlement of Invest-ment Disputes and its denunciation of Bilateral Investment Treaties (BITs).

Ecuador has also led innovative proposals for a new regional financial system including the Bank of the South, the Common Reserve Fund of the South, and the promotion of the Unified System for Regional Compensation (Sucre). The latter tends to employ electronic currency allocations in order to minimize transaction costs in regional trade, therefore dissociating itself from the use of the dollar or other foreign currencies.21

Labor policy: Considering the new constitutional order, the government an-nounced the outlawing of labor outsourcing and thereafter suggested propos-als for public control of companies in order to prevent the continuation of employment precarity. At the same time, the government rewrote universal insurance policy, reaffirming mandatory social security membership for de-pendents and thus avoiding employment precarity.22 Hence, between 2007 and 2011, the percentage of fully employed people with social security rose from 38% to over 57%. Moreover, the Constitution provides a new approach to social relations that aims to suppress gender inequality by equating domestic and reproductive work with productive work (Palacios, 2008). The Constitu-tion recognizes unpaid work for self-sustenance and human care, guarantee-ing progressive social security for unpaid workers, of whom women are the overwhelming majority. However, we can observe the neoliberal legacy in the persistence of regulatory frameworks that do not stimulate, and even hinder, the collective organization of labor.

Distributive policies: With the objective of consolidating a society based on the rule of law, the Constitution grants a central role to the state’s distributive

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responsibilities. This imperative depends on the state’s capacity to obtain re-sources and to implement allocation policies. Regarding the former, we have already observed that fiscal pressure has increased since 2007. Correspond-ingly, we see that in relation to the general government budget, social invest-ment increased from 18% during the 2001-2006 cycle to an average of 26% during the current government cycle.23 Regarding allocation methods, four lines of action can be identified:

Wage policy: Between 2009 and 2011, the government decreed various in-creases to the minimum wage. Comparing annual averages, in 2008 the real wage index was $117.15; the average in 2009 rose to $122.46; and in 2010 it reached $131.12 (Ministry for the Coordination of Economic Policy of Ecua-dor, 2011, p. 16). During the economic crisis, real wages were compensated by 3.6%. That is to say, they were adjusted to annual inflation. Thus, “govern-ment policies have helped maintain and even increase the purchasing power of households” (Acosta, 2010, p. 65). In 2007, the average family income covered 65.9% of the cost of basic goods, in 2011 this ratio reached 85.3%.

Direct transfer and subsidy policies: What is noteworthy in this area is the increase in monthly cash transfers from the Human Development Bond. These transfers rose from $15 to $35, benefitting poor people and those living in extreme poverty. The program has been one of the main axes of state action for more than a decade, and the current government’s emphasis on the con-tinuation and improvement in this system demonstrates its rejection of immo-bilizing neoliberal social policy (Ramírez Gallegos & Minteguiaga, 2007). We can also consider the government’s decision to give loans to cash-transfer recipients a dissociation from the neoliberal model. Along the same lines, the Housing Voucher was doubled from $1,800 to $3,600 (in rural areas it rose to $3,960) and a grant was created for caretakers of the disabled. The govern-ment has also defended the continuation of the universal subsidy for domestic gas and gasoline, and has enacted differentiated rates in public services.24

Policies with “universalist” tendencies: These are aimed at achieving univer-sal access to public education and healthcare. The $25 charge for enrollment in elementary and high schools was abolished, school textbooks were distrib-uted free of charge, and uniforms were delivered to students in rural schools. In the health field, medical consultation costs were eliminated, access to free essential medicines was expanded, and the 8 hour workday was enforced. The number of available certificates for teachers and doctors increased, as well as investment in basic infrastructure for both sectors. In the same universalist perspective, the Constitution mandated free public university education.

Factors of production: Although the Constitution mandates the redistribution of the factors of production, the government has only advanced with the leas-ing and title securitization of unproductive, state-owned lands and sharehold-ing sales to the employees of seized companies. The majority of land reform


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policies remain to be implemented. Also, a law that enables water redistribu-tion remains pending due to two major disputes: on the one hand, the conflict between the government and various indigenous organizations regarding the institutionalization of the water industry, and on the other, the tension between the ruling party and several corporate groups that want the water industry to remain unregulated and privatized, as it has been since 1994.

Regarding this last point, we can observe the other side of the state’s relative autonomy during the governing period of the Citizens’ Revolution: The veto capacity of certain blocs of power (internal and external to government) and certain bureaucratic circles, coupled with the partial isolation (and weaken-ing) of social organizations, block any progress for the redistribution of the factors of production and directly affect the correlation between labor and capital. Even under such circumstances, if we assume that the correlation of forces in a specific society is expressed in the structure of public expenditure, we can confirm that during the 2007-2011 cycle, the material conditions of social reproduction have been reconfigured and the public agenda and redis-tributive priorities have shifted.

In this sense, redistribution policies reconstruct an agenda for social inclusion (the protection of purchasing power, the continuation of subsidies, a combi-nation of universalist policies focused on social protection and the guarantee of rights) that is based on the need to reduce poverty and levels of inequali-ty.25 Social wealth redistribution benefits a wider range of social sectors and classes. Despite pressure for greater fiscal prudence, long-repressed popular demands have obtained an institutional response, expanding the margin of citizens’ trust in public action. This public action is consequently becoming institutionalized in the state and no longer depends on political will, as conser-vatives asserted in their evocation of the illusory “populist leader’s charisma” or as marketing logic erratically insists.

What Lies Beyond the Transition?

In the context of the return of the state and the challenge of regional inte-gration, progressive governments seek to replace the power relations that de-fine them as subordinates within the global economic system. Supported by the strategy of state appropriation of a significant portion of the large gains from their comparative advantage, these governments are gaining autonomy from the international system and consequently are able to implement a set of policies that distance themselves from the still-dominant logic of flexible accumulation inherent to neoliberal capitalism. However, the persistence of such a strategy will depend on the reelection of the actors who implement it in each country, and on the capacity of regional integration experiments to become supra-regional entities that “capture” and assess the capital that cir-culates throughout the region, as well as the surplus produced domestically. Above all, this strategy depends upon the experiment of the Bank of the South

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as the banking institution for regional development (Thwaites Rey, 2010). The initiative of regional development banking is based on a certain degree of au-tonomy from the global capitalist system, the protection of the regional econ-omy from the risky practice of financial speculation, and the reorientation of financing beyond the primary-export model—dominant even in countries with greater economic diversification, such as Argentina and Brazil—toward an al-ternative configuration based on the variety of existing economic and produc-tion models in the region (popular, social, private, and public) (Torres, 2011).

Following the return of the state and the subsequent reconfiguration of the region’s insertion into the global market, the main challenge now consists in modifying the pattern of productive specialization beyond that of primary exports in order to restructure current development models. The decline of neoliberalism increases the possibility for this reconfiguration, at least insofar as the primacy of finances over the real sector of the economy is questioned. However, the decline of neoliberalism in no way guarantees the restructuring of development models. In fact, although the state’s strategy of appropriating the surplus that comes from strategic resources income elevates the degree of national sovereignty with respect to the global power structure, it can also contribute to the persistence of each country’s standing in the current interna-tional division of labor, as well as the standing of the region as a whole.

The Ecuadorian government’s National Plan for Good Living 2009-2013 rec-ognizes such a situation and points out that during the next two decades, the country should transition towards an information-based service economy and the development of domestic industry by implementing a selective import substitution policy (Senplades, 2009). This policy would attempt to overcome, in the medium term, Ecuador’s dependence on the primary sector of the econ-omy and on oil exports. However, the foundation for the transformation of Ecuador’s productive structure is not obvious by any means. Between 2007 and 2011, the country’s industrial sector maintained itself at around 14%, the primary sector has experienced a slight decline from 26.1% to 23.1%, and the service sector recorded an increase from 51.5% to 53.6%.26 As for other sec-tors, the dilemma of how to finance transition in the framework of production specialization seems to have no other solution than the development of the hydrocarbon and mining industries. This strategy has generated socio-political tensions and disputes with sectors that reject any type of transition that repro-duces conventional forms of natural resource exploitation, even if it presents post-neoliberal and redistributive elements.

Within the context of this debate, there is not yet a decisive agreement as to what extent and under what forms and criteria the surplus generated by extraction will be used to reinforce local production and domestic industry in order to construct a diversified and plural economy and a fully democratic society. As has already been suggested, resolving such a dilemma requires some type of compromise between domestic financing of national develop-


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ment and the trend towards regional integration. Moreover, a set of public policies is required to encourage new forms of communication between the public sector, the private sector, and the popular-communal sector, thus open-ing up options for scientific and technological innovation and cooperation in various sectors of the economy. In turn, this would guarantee the redistribu-tion of the factors of production and would be conducive to the expansion of domestic production, while considering nature’s biophysical limits and the social and supportive character that the Constitution confers on the whole economy. All these issues require maintaining the state’s relative autonomy as well as the autonomy of social actors who have endured the restrictive and exclusionary dynamics of an economy centered on finances and primary ex-ports. The weakness of these actors and the fragility of their autonomy pose questions about the political sustainability of the post-neoliberal transition in twenty-first century Ecuador.

The continuation of such an agenda shall be the focus of the 2013 election. Facing the upcoming election, and as the crisis of neoliberal capitalism inten-sifies in the North, the national government of Ecuador has robust economic figures to show for 2011, including a growth rate close to 8%, one of the lowest urban unemployment rates in recent years and the lowest in the region (5.1%), and the maintenance of redistributive policies. The return of the state has propelled important economic activity with the capability to mobilize em-ployment, promote equality, and regulate the market. While this course of post-neoliberal action has managed to pervade society,27 the financial industry will not be won over, of course: S&P’s world map places Ecuador in the “red zone” for investors and creditors, with a sovereign risk rating that has ranged between CCC+ and B- during the last 2 years. By January 2012, only Bolivia and Argentina had lowered to similar levels. The new South American trajec-tory does not appeal to the global financial system, in the same way that local representatives of world capitalism have failed to beguile the electorate in most of the region’s countries for over a decade now.

Footnotes

1. As noted by the Chilean student leader, Camila Vallejo, “If we used the profits that one large mining corporation alone generates, we would be able to finance all of higher education. It could all be free, because it costs 2.2 billion pesos ($2,200 million), which is the amount of profit that large mining business makes ….We want to ensure free tuition at 24 universities that fall under the Board of Regents. For other universities, we seek a more accessible financing system, such as a Solidarity Fund, completely eliminating private banks …” (Vallejo, October 13, 2011).2. For further reading on this topic, see Ramírez Gallegos, 2006.3. Beyond formal politics, this notion refers to the set of distributive guidelines that enable social forces to gain access to decision-making mechanisms and the means of production, organization, and communication, on the basis of which political power is institutionalized and contested (Offe, 1990).

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4. Oscar Oszlak (2007) suggests that this concept integrates components of economic development, democratic governance, and distributive equity, and is not limited to the sphere of democratic systems or the democratic state.5. The Citizens’ Revolution obtained 80 of the 130 seats in the Assembly, and other progressive parties obtained 10 more. Such a configuration left the conservative par-ties with a diminished capacity to influence the constitutional debates.6. I refer specifically to the telecommunications, postal service, railroad, and hydro-electric sectors.7. By 2011, state oil extraction was twice that of private oil extraction, and after re-negotiating contracts, the state received an additional $46 million for each dollar of increase in the cost per oil barrel (Senplades, 2012).8. In 2007, an executive decree established the Internal Auditing Commission for Public Credit of Ecuador (CAIC), composed of experts, citizens, and representatives of national and international organizations. CAIC audited various forms of credit ac-quisition at commercial, multilateral, and bilateral levels between 1976 and 2006.9. Therefore, while the public debt/GDP ratio reached 49% between 2000-2006, during 2007-2011 it stood at 25%. As for public spending, in 2006, 24% of the budget was allocated to paying off foreign debt; by the end of 2011, this figure fell to 7% (Senplades, 2012).10. The ratio of direct taxes to total tax revenue increased nine points during the cur-rent governing period, from 34% to 43% of total tax revenue between 2006 and 2010.11. In 2006 Ecuador had a tax burden of 10.38%. In 2011, this indicator increased to 14.3% (Senplades, 2012).12. In fact, non-oil revenue represented 53% of the Treasury’s permanent income in 2011 (Ministry of Coordination for Political Economy of Ecuador, 2012, p. 4).13. There have been attempts to decorporatize both large economic groups and so-cio-corporate arrangements, such as corporate control of the public teachers union, regarding the tasks of selecting and evaluating teachers. The government is now re-sponsible for completing these tasks.14. Of the 103 laws passed during the 2007-2011 cycle, 29% aim to “restructure the state.” This percentage is only surpassed by that which corresponds to “guaranteeing rights” (30%). Meanwhile, reforms in the “development system” have been the focus of 23% of laws passed during the current governmental cycle (Senplades, 2012, p. 100).15. The state reduced the amount of monetary demands from $941 million to $149 million made by four investors in foreign courts in 2008. Agreements were also reached with several companies to abandon the prosecutions. The most complex ne-gotiation was with Brazil, after Ecuador decided to expel the Odebrecht construction company due to breach of contract.16. The police putsch of September 30, 2010, for example, was linked to various in-stitutional reforms that reversed protection mechanisms for security forces (Ramírez Gallegos, 2010).17. Some sectors of the Citizens’ Revolution have sought to refocus the discussion revolving around development within the framework of “Good Living,” or Sumak Kawsay. In the National Plan for Good Living, Good Living is defined as “the healthy flourishing of all persons in peace and harmony with nature; and achieving an indefi-nite perpetuation of human cultures” (Senplades, 2009, p. 6).18. The three laws that represent the new planning framework are the Planning Code, the Law on Citizen Participation, and the Territorial Incorporation, Autonomy, and Decentralization Code, approved between 2009 and 2010.


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19. For example, the Fundamental Law of Responsibility, Stabilization, and Fiscal Transparency was repealed along with other regulations that placed rigid limits on spending and public debt and assumed the existence of stabilization funds located in international banks whose purpose was to retain the public reserves for handling any external shocks and for debt buyback. (One such fund, FEIREP, destined 70% of its invested resources to buy back commercial paper.)20. At the peak of the capitalist crisis in 2008-2009, in addition to the effort to inject resources into the economy, the government demonstrated its activist trade policy by supporting certain production sectors and safeguarding imports. This measure in-creased tensions with neighboring countries (especially with Peru) that are more prone to full market liberalization. The application of safeguards favored certain sectors of domestic industry, lowered import levels, and managed to avoid currency outflow. After overcoming the crisis, some of these safeguards were abandoned. In subsequent years, this action resulted in continuing problems with the balance of trade.21. Ecuador’s sucre transaction total increased from $7,198,225 to $262,226,922 be-tween 2010 and 2011.22. One of the controversial debates surrounding the Referendum of May 2011 was the proposition of prosecuting employers who do not affiliate their workers to social security. 55% of the population voted in favor of the measure.23. Before 2007, the resources designated for debt payment were double those allocat-ed for social investment. Today the opposite is true.24. For example, the “Dignity Rate” (electricity) halves the value of each kilowatt-hour for low-energy sectors and raises this rate for the middle and upper-middle sectors.25. Since 2006, the national level of income poverty fell from 37.6% to 28.6%, while the national Gini coefficient improved from 0.54 to 0.47 (Senplades, 2012, p. 59).26. The remaining 9% correspond to other elements of GDP such as tariff rights, in-direct importation, and value-added taxes, minus subsidies (Senplades, 2012, p. 19).27. According to the 2011 Latinobarómetro annual report, the Ecuadorian state is rated as one of the two most just and effective in the whole region (http://www.latino-barometro.org/latino/DownloadDoc.jsp).

References

Acosta, A. (Ed.) (2010). Análisis de coyuntura: una lectura de los principales com-ponentes económicos, políticos y sociales de Ecuador durante el año 2009. Quito: FLACSO Ecuador.Bresser-Pereira, L.C. (2007, July-August). Estado y mercado en el nuevo desarrollis-mo. Nueva Sociedad 210, 110-125. ISSN: 0251-3552.De Sousa Santos, B. (2011, November 18). La huelga general. Universidade de Santi-ago de Compostela. Retrieved from http://firgoa.usc.es/drupal/node/50539Latinobarómetro (2011). Annual Report. Retrieved from http://www.latinobarometro.org/latino/DownloadDoc.jspMinistry for the Coordination of Economic Policy of Ecuador. (2011). Informe de desempeño de la economía ecuatoriana 2010. Quito.Ministry for the Coordination of Political Economy of Ecuador. (2012, February). Informe de indicadores macroeconómicos. Quito.Offe, C. (1990). Contradicciones del estado de bienestar. Madrid: Alianza Editorial.Oszlak, O. (2007, July-August). El Estado democrático en América Latina: hacia el desarrollo de líneas de investigación. Nueva Sociedad 210, 42-63. ISSN:0251-3552.

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Palacios, P. (2008, March). Los derechos de las mujeres en la nueva Constitución. Institute for Research and Debate on Government. Retrieved from http://www.insti-tut-gouvernance.org/en/analyse/fiche-analyse-452.htmlRamírez Gallegos, F. (2006, September-October). Mucho más que dos izquierdas. Revista Nueva Sociedad 205, 30-44.Ramírez Gallegos, F. & Minteguiaga, A. (2007, September). El nuevo tiempo del Es-tado: la política posneoliberal del correísmo. Observatorio Social de América Latina VIII (22).Ramírez Gallegos, F. (2010). Decisionismos transformacionales, conflicto político y vínculo plebeyo. Poder y cambio en las izquierdas sudamericanas del siglo XXI. In América Latina: 200 años y nuevos horizontes. Buenos Aires: Ministerio de Cultura.Ramírez Gallegos, F. (2010, November). El día más triste. La revolución ciudadana y las batallas por el Estado en Ecuador. Le Monde Diplomatique X(113).Saint Upéry, M. (2004, October-December). La mistificación de lo social. Revista Barataria 1.Senplades. (2009). National Plan for Good Living 2009-2013. Retrieved from http://plan2009.senplades.gob.ec/web/enSenplades. (2012, January 14). Evaluación de resultados del Plan Nacional para el Buen Vivir 2007-2011. Retrieved from http://plan2009.senplades.gob.ec/docu-ments/11813/36111/PNBV_ENGLISH.pdfTarrow, S. (2011, October 10). Why Occupy Wall Street is not the tea party of the left. The United States’ long history of protest. Foreign Affairs. Retrieved from http://www.foreignaffairs.com/articles/136401/sidney-tarrow/why-occupy-wall-street-is-not-the-tea-party-of-the-left#Thwaites Ray, M. (2008, June). ¿Qué estado tras el experimento neoliberal? Revista del CLAD 41.Thwaites Rey, M. (2010, April). Después de la globalización neoliberal, ¿Qué Estado en América Latina? Observatorio Social de América Latina XI(27).Torres, E. (2011, December). Crisis económica internacional, nueva arquitectura fi-nanciera. Entrevista a Pedro Páez. Línea Sur 1(1), 193-204.Vallejo, C. (2011, October 13). Camila Vallejo: ‘necesitamos un cambio constitucio-nal en Chile.’ LibreRed. Retrieved from http://www.librered.net/?p=11465


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PROSPERITY AND ECONOMIC GROWTHFander Falconí

During the past 2 years, Tim Jackson’s book on ecological macroeconomics, Prosperity without growth: Economics for a finite planet, has raised such a stir in Europe that it has been translated into over 30 languages. Jackson was the di-rector of the economic report of the Commission for Sustainable Development in Great Britain from 2003 to 2011, and is known for his previous works on the social psychology of consumption. While he recommends an economic growth formula for countries like India, China, and Ecuador, he also recognizes that once an annual per capita income of $15,000 has been reached, further increas-es in this income do not necessarily correlate to an increase in life satisfaction. This is the so-called “Easterlin Paradox,” confirmed in multiple studies: Hap-piness does not increase according to income or the consumption capacity of a population.

Nowadays, psychologists conduct much research on happiness. Daniel Kahneman was awarded the Nobel Prize in Economics in 2002 for integrating theories from the field of psychology to the study of happiness. The societies of wealthy coun-tries are a good example of the disparity between economics and well-being: Residents of the United States are currently almost three times richer than they were in 1950, but they are not happier than those who lived half a century ago. “Money doesn’t buy happiness,” as our elders would say.

On the other hand, economic growth cannot be disassociated from the progressive use of energy and materials. There is a permanent increase in society’s metabo-lism. The relationship between the flows of matter, energy, and socio-economic activities led the way to concepts such as “industrial metabolism” (Ayres, 1989) and “social metabolism”—analogies to the digestive and excretory capacity of the human body (Adriaanse et al., 1997; Fischer-Kowalski & Haberl, 2007).1

The main implication of the concept of social metabolism is that a closed circu-lar economy does not exist; rather, the economy is affected by the extraction of resources and the production of residues and dissipated energy (Georgescu-Roe-gen, 1971). Those who are most harmed by unlimited economic growth are fu-ture human generations, poor people, and non-human species. Therefore, it is necessary to remember the work of Kenneth Boulding (1967), who popularized the metaphor of a transition from a world without limits—like the pioneer of the West, the North American cowboy’s unlimited horizon—to a more contained world, like that of a spaceship.

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In Latin America, protests against the unlimited, large-scale mining industry are common, especially in countries like Argentina, Peru, and Colombia. And in the Peruvian and Ecuadorian Amazon, environmental damages and liabilities incurred by the extraction of gas and petroleum are well known. A financial li-ability for one person can be a financial asset for another. Human consumption and production generate these types of rights and responsibilities; those who exercise these rights and responsibilities are the “agents” that interact within the economy. Moreover, these “economic activities” provoke liabilities for the environment and for the human beings who inhabit it. The more immediate the connection between consumption, production, and the environment, the greater the impact in the biosphere. In other words, there will be more environmental li-abilities. On a global level, economic growth means greater production of carbon dioxide and thus an acceleration of climate change.

Socio-environmental costs are not paid; they are “externalities”: The effects de-rived from production or consumption activities are not considered when estab-lishing market prices. Some terms used to refer to these externalities are “market failures,” non-economies, and environmental liabilities. The “internalization” of these externalities consists of placing a value on environmental damages and plunderings. William Kapp (1950) has noted that environmental damages are not just the result of market failures, but in reality are “successful” cost transfers to those who have less power.

Many times, externalities are assessed in monetary terms, although they are of-ten unquantifiable. What is the cost of a lost human life or an extinct species? A difficult, laborious, exhausting, but sometimes successful route is going to court to appeal the damages. Another route, which should be more common, is impos-ing public policies and accounting standards that include these ecological debts and environmental liabilities.

Hence, Tim Jackson, following the path of other ecological economists such as Kenneth Boulding, Nicholas Georgescu-Roegen, Herman Daly, Peter Victor, and Joan Martínez Alier (in turn following Serge Latouche), proposes a prosper-ous economy, but one without growth for developed countries—a slow economy that allows the restoration of the planet’s health.

At his book presentation in Barcelona in January, Jackson declared, “We must stop linking development with the squandering of materials. We must let the planet breathe, and opt for actions that leave little ecological footprint. We must decrease our material consumption, lower CO2 emissions, and commit ourselves to improving healthcare and employee services.” He also asserted that the cur-rent economic crisis is related to the environmental crisis, considering that one of its factors was the increase in the price of raw materials, among them petro-leum, a situation that will surely worsen due to our proximity to the maximum extraction capacity.

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The engine of economic recovery in Europe, Japan, and the United States does not have to be based on consumption, but rather public investment, energy con-servation, renewable energy, and community services. This is a “Cinderella economy,” pushed into the background until now because it gives little benefit to capitalists. Although welfare projects and social services account for only 50% of average carbon emissions, and despite significantly increasing people’s wel-fare, in Europe we see cuts in healthcare and education services. The purpose of these cuts is to guarantee the repayment of debt, which should not have increased the way it did; the result of the false illusion of continuous growth. Greece and Spain are good examples of what happens when neoliberal polices are imposed.

Growth no longer ensures well-being. We must reject the European idea of jump-starting the consumer economy with loans that we won’t be able to pay later. We must focus the economy on the real needs of the people. In Ecuador, this is what we call Sumak Kawsay or Good Living—the desire to live well, I would add.

Now, if the economy does not grow, what happens with employment? The num-ber of the unemployed will increase. Therefore, we need to give a basic citizens’ income to everyone, as well as support jobs in the “Cinderella economy.” People need to feel useful. The stigma of unemployment decreases well-being; therefore we should redistribute work and place importance on other social activities: fam-ily, friends, community, creative leisure, and physical activity. As Castoriadis wrote some years ago: Do you prefer a new friend or a new Mercedes Benz?

Footnotes

1. For a synthesis of this topic and for further reading, see Fischer-Kowalski, 1998 and Martínez Alier, 1987.

References

Ayres, R. (1989). Industrial Metabolism. (IIASA report RR-89-11, p. 23-49.)Adriaanse, A., Bringezu, S., Hammond, A., Moriguchi, Y., Rodenburg, E., Rogich, D., & Schutz, H. (1997, April). Resource flows: The material basis of industrial econ-omies. Washington D.C.: World Resources Institute.Boulding, K. (1967). The economics of the coming spaceship earth. In H. Jarrett (Ed.), Environmental quality in a growing economy (pp. 3-14). Baltimore: John Hop-kins Press, Baltimore.Fischer-Kowaslki, M. (1998, January). Society’s metabolism: The intellectual history of material flow analysis, part I, 1860-1970. Journal of Industrial Ecology 2(1), 61-78.Fischer-Kowalski, M. & Haberl, H. (2007). Socioecological transitions and global change: Trajectories of social metabolism and land use. Cheltenham: Edward Elgar Publishing Limited.Georgescu-Roegen, N. (1971). The entropy law and the economic process. Cam-bridge: Harvard University Press.Kapp, W. (1950). The social costs of private enterprise. Cambridge: Harvard Univer-sity Press.Martínez Alier, J. & Schupmann, K. (1987). Ecological economics: Energy, environ-ment and society. Oxford: Basil Blackwell.

103www.akal.com

For a half century, the New Left Review has been one of most important and prestigious publications of leffist critical thought, becoming a symbol and banner of the global intellectual vanguard. Throught rigurous articles, reviews, and interviews by great specialist and writers of international politics, the global economy, global resistance movements, universal Literature, contemporary film, cultural criticism, and the different forms and problematics of current artistic creations, being one of the constant reference points for research and debate, especially in countless universities and educational centers around the world. The New Left Review is thus an indispen-sable addition to any library.Ediciones Akal has published this bimonthly journal in Spanish since January 2000, thus allowing Spanish-speaking readers to join the leffist theoretical ande intellectual debate.

Runa - Iván KashinskyHombres rezando, Huancané, Departamento de Puno, Perú 2009

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THE EX ANTE IMPACTS OF THREETRADE AGREEMENTS ON THEECUADORIAN ECONOMYVíctor Aguiar, Hugo Jácome and Mayra Sáenz

“Today, development is a worldwide concern that transcends short-term ideologies and interests. Now it is as much a moral as a political challenge.”

Kofi Annan, 1997

Endogenous development—currently part of Ecuador’s trade integration strat-egy promoted by the National Plan for Good Living—prioritizes the encour-agement of nascent industries that generate added value and that promote the expansion of skilled labor. This alternative policy aims to reorient Ecuador’s historical pattern of trade, based on the exportation of primary goods with little added value and the importation of manufactured goods.

Several alternative trade policies have been proposed that would change Ecua-dor’s future pattern of trade. Some of these proposals include the liberalization of trade in goods between Ecuador and the European Union, Ecuador’s entry into the Common Market of the South (Mercosur), and Ecuador’s withdrawal from the Andean Community of Nations (CAN). Undoubtedly, the adoption of these policies would create both macroeconomic costs and benefits, an assess-ment of which would be highly useful for designing the country’s economic policy. One useful tool for this assessment is the general equilibrium model. This article presents the research results of the potential economic impact of the trade agreements mentioned above, for the 2012-2015 period, measured by the Analysis of Exogenous Shocks and Economic and Social Protection Model (MACEPES according to its Spanish acronym), a tool specifically de-signed to simulate trade policy scenarios.1 We should clarify that the costs and benefits of the agreements referred to above have repercussions beyond the dimension of trade, but in this article we will focus on this aspect.

General Context

Throughout its history, Ecuador has maintained a high degree of trade liberal-ization. To a large degree, its economic growth has been based on the export of primary goods such as coffee, cacao, and bananas, and of natural resources such as petroleum. This economic growth has not necessarily translated into economic development, if we interpret the latter as a balanced change among the economic, demographic, and social structures that sustain a better quality

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of life (Perroux, 1965). The country exports low-technology goods and im-ports manufactured and high-technology goods and supplies for production or final consumption. This form of insertion into the global market has followed a clear North-South geo-commercial trade pattern.

Indeed, throughout its history, Ecuador’s exports, like those of almost all South American countries, have been destined most frequently for markets in the United States and Europe. Exports to other countries in the region, although increasing in frequency, are not as common. Several factors have been conducive to this situation: Ecuador’s circumstances of being a producer of substitute goods (primary goods), regional demand characterized by low income levels, geographic barriers, a lack of infrastructure, and protectionism by developed countries, among other factors. During the first decade of the twenty-first century, many of these factors have changed: In South America, economies have exhibited one of the fastest and most sustained growth rates, and investment in regional infrastructure has intensified.

In this specific context, public debate in Ecuador has focused on three new approaches for insertion into the global market. The first is the option to sign free-trade agreements (FTAs) with the United States and/or Europe. In South America, countries such as Colombia, Peru, and Chile have chosen this path, anchoring their foreign trade strategy in a North-South orientation. In Ecua-dor, the option to sign an FTA with the United States was discarded in the middle of the last decade due to pressure by social movements that opposed these types of agreements. However, the possibility of a trade agreement with the European Union is currently being discussed.

A second approach is represented by the Mercosur countries that encourage endogenous economic development. They participate in North-South rela-tions as a bloc while concentrating on emerging and interregional markets (“Ecuador estudia ‘muy seriamente,’” n.d.). As for the third alternative, Ec-uador is considering withdrawing from the Andean Community of Nations (CAN), a union that it has been a member of since 1969. The possibility of withdrawal is motivated by certain tensions within the CAN, including the signing of FTAs by Colombia and Peru with the United States, Venezuela’s withdrawal from the union, and Colombia’s obstruction in 2011 of the free-dom to transport merchandise along Andean routes.

Trade Agreements: A Cost-Benefit Analysis

Trade integration is a form of collective action among countries that seek to achieve a certain objective, which can be as ambitious as political and eco-nomic unification, as in the case of the European Union, or the creation of a comprehensive free trade area, such as the North American Free Trade Agree-ment (Nafta) (Smith, quoted in Feng & Genna, 2003, p. 279).

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Línea Sur | Strategic Agenda and Integration

In standard trade theory, trade liberalization is always considered to be ben-eficial in the sense that it improves efficiency by specializing production in each country. However, when a trade agreement includes not only a free trade zone but also a customs union, integration is considered beneficial in terms of economic efficiency when the effect of generating trade is greater than that of trade redirection (trade diversion) (Balassa, 1961).2

In the case of South-South trade agreements, the importance of exchanging similar products among countries with equivalent development levels lies in the additional revenues that complement gains from inter-industry trade, which results in less volatile export products. From this perspective, regional integration becomes a mechanism to reduce the inefficiencies generated by the presence of market power. For example, if two countries have a monopolistic producer of a good, after market integration they will have two producers in-stead of one. Market power is thus automatically reduced. At the same time, supply increases and prices decrease. In general, this type of theory predicts that large firms’ huge influence over trade policy and domestic markets is re-duced in exchange for a net increase in social welfare.

Thus, integration among the South American countries should be analyzed by considering several political and economic considerations. Politically, gov-ernments that sign these types of agreements see integration as a means to improve domestic and regional stability. Economically, they believe that inte-gration strengthens the negotiating power of small economies in international markets. Thus, regional integration emerges as a tool to achieve a set of shared development goals and objectives (Quevedo & Villela, 2003).

In summary, among the benefits of regional agreements, we should emphasize the fact that they strengthen positions for international negotiation, increase international competitiveness (because factors of production circulate more freely, policies and norms are standardized, etc.), and strengthen coopera-tion in managing common problems (Quevedo & Villela, 2003). However, Latin American trade integration cannot be considered as a panacea for all the existing development problems in the region: It is only a partial solution (Axline, 1981, p. 183). Furthermore, we should note that successful regional integration requires that the integration process and domestic institutions are mutually reinforcing.

On the other hand, we should note that adherers to heterodox positions have criticized free trade between asymmetrical regions, emphasizing that the terms of trade for small economies are unfavorable in comparison to larger ones. In short, they take into account deteriorating terms of trade between countries that export technology and those that export primary goods.

Another point for debate is a national government’s ability to use customs pol-icy as a protection mechanism for those strategic sectors that historically have

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The ex ante impacts of three trade agreements on the Ecuadorian economy | Víctor Aguiar, Hugo Jácome and Mayra Sáenz

lacked the opportunity to develop. For example, the Ecuadorian government has used trade policy strategies to protect productive sectors in two reforms (2008 and 2009) aimed at reducing costs, changing the relative prices of the main imported goods compared to their domestic alternatives, and stimulating growth in these industries in favor of the domestic market.

Another cost of trade agreements that we must keep in mind are bloc nego-tiations with third parties, that often prove difficult. This is true for negotia-tions by the CAN, whose customs union is flawed: Negotiations tend to be isolated between Peru and Colombia with the United States, for example, or between Ecuador, Peru, and Colombia with the European Union, diminishing the strength of the regional union.

On the other hand, in Mercosur, the relative power of member countries de-termines which one has more say at the negotiating table, despite the fact that it is a customs union. Furthermore, the volatility of the exchange rate policy, which distorts the nominal exchange rate and the relative prices of goods both within the bloc and outside it, has had a negative effect on the flow of trade (Baer, Cavalcanti, & Silva, 2002). It is worth mentioning here that Ecuador has a fixed exchange rate and does not possess a monetary policy: It would be at a disadvantage if the bloc members modified their exchange rate against the dollar in order to gain price advantages.

Finally, as previously noted, we should highlight that any trade policy can bring about both favorable and harmful circumstances. (See Table 1.)

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Table 1

The Major Costs and Benefits of Potential Trade Agreements

Potential trade agreements

Benefits Costs

FTA between Ecuador and the European Union

According to the standard trade theory, efficiency would improve through specialization of production.

This agreement would promote comparative advantages in the primary sector.

This agreement would decrease endogenous development through domestic industry, especially on a small and medium scale.

It would reinforce Ecuador’s current trade patterns: high dependence on the primary sector and the generation of products with limited added value, vulnerable to fluctuations in international prices.

Ecuador’s entry into Mercosur

This agreement would increase economic efficiency if more trade is generated than redirected (trade diversion).

It would reduce inefficiencies due to the influence of market power.

It could limit the national government’s capacity to use tariff policy as a protection mechanism for strategic sectors, since this agreement implies a customs union.

Ecuador would be obligated to withdraw from the CAN since Mercosur does not allow bilateral free trade or integration negotiations.

Asymmetries exist between the countries of this bloc that would cause deterioration in terms of trade.

The bases for the coordination of economic policy have yet to be created.

Ecuador’s withdrawal from the CAN

This could offer greater flexibility to Ecuadorian trade policy, allowing it to promote the domestic market for certain strategic sectors such as machinery, chemicals, and processed foods. This flexibility would be limited by WTO norms.

It would be beneficial if the additional protection of strategic sectors enabled virtuous cycles, which in turn generated production chains and increased demand for manual labor.

This agreement would generate disadvantages in local markets, since trade with Bolivia, Colombia, and Peru involves production chains that create jobs throughout the whole country.

Ecuador would lose relative weight and negotiating power.

Dynamic markets could be lost, like those with Colombia, Peru, and Bolivia, in which a wide variety of industrialized items with added value are marketed (“La Cancillería pidió,” 2011).

Note. Information from the Central Bank of Ecuador. Authors’ presentation.

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Ecuador’s Commercial Structure and Trade Patterns by Economic Area

This analysis of Ecuador’s commercial structure and its trade patterns with the European Union, Mercosur, and the CAN seeks to anchor the results of the simulations executed within a Computable General Equilibrium model.

The CAN is one of Ecuador’s most important trade partners. It is outranked only by the United States, followed by the European Union. In contrast, the volume of trade that Ecuador maintains with Mercosur is low, representing only 1% of exports and 7.8% of imports.

Graph 1

Ecuador’s Main Trading Partners (2003-2011 average)

Note. From the Central Bank of Ecuador.

In recent years, bilateral trade between Ecuador and the European Union has resulted in a positive balance in favor of the Andean country, although this advantage has decreased since 2010. On the other hand, Ecuador’s trade with Mercosur and the CAN has exhibited continuous deficits, except for 2007 and 2008, when Ecuador’s trade balance with the CAN featured surpluses, mainly as a result of price increases in crude oil exports (Central Bank of Ecuador, 2008, p. 13-14). After this period, trade deficits continued, further aggravat-

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ed by the 2009 international crisis. This was not true of Ecuador’s balance of trade with Mercosur, which improved when the crisis affected the income level of the bloc’s members. Since 2010, we have seen a reduction in the trade deficit that has been maintained until 2011.

Graph 2

Ecuador’s Balance of Trade By Economic Area

Note. Information from the Central Bank of Ecuador. Authors’ presentation.

By breaking down the data to the sectoral level, we can observe that Ecuador exports mainly agricultural and fishery products to the European Union–39% corresponds to the banana industry–at the same time that it imports industrial manufactures. Thus, given the European Union tariff structure, it seems likely that an FTA would reinforce the same trade pattern of the past several years. Similarly, we can see that Ecuador’s exports to Mercosur are mainly primary goods, such as oil, bananas, fish, and other food items, while products with greater added value, such as chemicals, metallurgical products, machinery, and processed products from the meat, dairy, milling, and bakery industries, constitute Ecuador’s main imports. As previously mentioned, even if these trade agreements are South-South oriented, we must consider the asymmetries in structures of production, since these agreements could have an effect simi-lar to that of an FTA with the European Union.

Unlike these two economic blocs, the trade relations that Ecuador maintains with the CAN reflect the fact that the principle imports and exports between

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these two entities are industrialized goods (chemicals, textiles, and other man-ufactures). Therefore, one could say that trade with the CAN contributes to the development of domestic industry and that withdrawal from this trading bloc could prove disadvantageous.

The Impact of Potential Trade Agreements

In order to identify the main macroeconomic effects of these agreements, the most important changes in the trade in goods, and the winning and losing sec-tors, we will use the expanded MACEPES, which is specifically designed to evaluate the effects of trade policies.

It is important to mention that multi-sectoral general equilibrium models such as MACEPES were not designed for prediction: Their strong point is counterfactual analysis. That is to say, they are used to compare different potential scenarios. With this in mind, we will consider scenarios that proj-ect what could happen if Ecuador signed an FTA with the European Union, joined Mercosur, and withdrew from the CAN. This analysis provides both the limit superior and the limit inferior for the possible effects of the various trade policies.

We should remember that in a framework of general equilibrium, what is be-ing measured is the global effect of an exogenous shock; that is to say, the sum of its direct, indirect, static, and temporary effects. Moreover, through this model it is possible to simulate both isolated and simultaneous economic shocks. Therefore, if we consider the scenario of Ecuador signing an FTA with the European Union or withdrawing from the CAN, we can establish scenarios in which tariff rates are eliminated or bilaterally imposed. On the other hand, in the scenario of Ecuador joining Mercosur, we can simulate the existence of a free trade area both with and without a common external tariff, and the scenarios of Ecuador remaining in the CAN and withdrawing from it. (See Table 2.)

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Table 2

Trade Agreement Scenarios

Trade agreement Name Description

Free Trade Agreement with the European Union

Baseline The 2007-2015 period is used as a point of reference to compare with reduced tariff periods. In the baseline scenario, all macroeconomic aggregates grow at a rate of 4-5% per annum for the 2007-2015 period.

FTA-E.U.

Unilateral

Unilateral-E.U.

FTA-nb (not including the banana industry)

Unilateral-E.U.-nb

Simulates the bilateral elimination of the Ecuador-E.U.-27 tariffs.

Simulates the unilateral elimination of tariffs that Ecuador imposes on the E.U.-27.

Simulates the unilateral elimination of tariffs that the E.U.-27 imposes on Ecuador.

This scenario is similar to the FTA-E.U., but excludes Ecuador’s banana industry from the scenario.

This scenario is similar to Unilateral-E.U., but excludes the scenario of the E.U. reducing its tariffs on Ecuador’s banana industry.

Ecuador’s Entry into the Common Market of the South (Mercosur)

Baseline

FTA

Union

Union 2

This scenario is based on the assumption that Ecuador does not join Mercosur.

This scenario simulates a free trade zone between Ecuador and Mercosur, without common external tariffs and maintaining fixed exchange rates.

This scenario involves an FTA + the adoption of a common external tariff over a five-year period + withdrawal from the CAN.

An FTA + the adoption of a common external tariff over a five-year period + remaining in the CAN.

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Ecuador’s Withdrawal from the Andean Community of Nations (CAN)

Baseline

Minimum-scenario

Maximum-scenario

Average-scenario

In this scenario, fixed tariff rates are maintained at 2007 levels.

Simulates the imposition of a minimum legal tariff according to MACEPES.

Simulates the imposition of a maximum legal tariff according to MACEPES.

Simulates the imposition of an average legal tariff according to MACEPES.

Note. Authors’ presentation.

Starting from these potential scenarios, we can analyze the baseline effects that the three trade policies would create, setting aside other factors that these agreements might entail, such as the liberalization of trade in the service sec-tor, investments, intellectual property, institutions, and international factor movements.

The Impact of Potential Trade Agreements on the Ecuadorian Economy

The results demonstrate that the implementation of these types of trade pol-icies could positively affect certain economic sectors and negatively affect others. Nevertheless, it is necessary to note that the baseline is generated by assuming that the economy evolves in a relatively balanced manner during the entire solution period of the model (i.e. 2007-2015). Given this assumption, the results are shown as percentage deviations with respect to the baseline scenario for the 2011-2015 period. (See Table 3.)

Impact on gross domestic product (GDP)

Upon analyzing real GDP in each of the simulated scenarios, we find that the aggregate effect in the scenario of an FTA with the European Union is very small, since it increases only 0.32% on average during the 2011-2015 period. These results demonstrate that the assertion that free trade agreements are important for economic growth is not necessarily true. Moreover, when one removes the impact of the banana industry on the agreement (the FTA-nb scenario), it becomes clear that the GDP level scarcely increases (by 0.13%).

Similarly, if Ecuador joins Mercosur, in all three trade liberalization scenarios we observe that the positive effects on GDP are very small: The scenario of convergence towards a common external tariff proves to have a greater impact on GDP (0.16%) than a free trade zone does (0.04%). This demonstrates that


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the tariffs that Mercosur imposes on the rest of the world are less than the ones currently imposed on Ecuador. Using a model such as MACEPES, which is a neoclassical structuralist model, we see that Ecuador’s total production bene-fits by expanding its trade with the rest of the world. On the other hand, Ecua-dor’s withdrawal from the CAN has negative effects, since the imposition of tariff rates on trade flows between Ecuador and Bolivia, Colombia, and Peru is detrimental to major macroeconomic variables. However, we should stress that the variations are small in all cases; in the case of GDP at factor cost, the maximum negative variation is 0.01%.

Impact on the development of trade

In terms of trade, the scenario that simulates an FTA with the European Union points to a greater impact on imports than on exports, resulting in a dete-rioration in the Ecuador-European Union balance of trade. Unilateral tariff reduction by Ecuador would produce two effects on imports. (See the Uni-lateral scenario.) On the one hand, relatively cheaper imports from the Euro-pean Union would increase, thereby increasing total imports. (See Table 3.) Consequently, the real exchange rate would depreciate in order to restrict the exogenous balance of the current balance of payments. On the other hand, the European Union tariff reduction would create an increase in Ecuadorian exports that is compensated by an appreciation in the real exchange rate. (See Unilateral-EU scenario.)

In the event that Ecuador joins Mercosur, we observe that the main source of growth in production comes from the increase in general exports, which reaches 0.8% in the scenario of convergence towards a common external tariff plus remaining in the CAN. We can contrast this with the free trade scenario, in which the increase is only 0.3%, indicating that the reduction in tariffs as a result of a common external tariff has a positive effect on the country’s global competitiveness. Imports increase in all scenarios, although to a lesser extent with a free trade zone with Mercosur, and almost 0.7% with the adoption of a Mercosur common external tariff. In other words, lower-ing tariffs in order to create a single external tariff lowers prices for imports from outside the regional bloc. We also see an increase in both exports and imports, with a greater effect on imports within the free trade zone, and an increase in exports in the common external tariff scenario, with or without withdrawal from the CAN.

In contrast, when analyzing the effect of Ecuador’s withdrawal from the CAN on exports, we see that this decision has a negative effect in all scenarios: max-imum (-0.16%), minimum (-0.03%), and average (-0.06%). We can attribute this effect to the increase in costs for industries that face elevated prices for their input goods. At the MACEPES goods level, the simulation shows that the machinery industry shows a slighter decrease, since it has a 1.93% average decrease in exports. The effect on imports hardly differs from what we see in ex-

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ports, since it reflects a negative impact due to tariff impositions among the CAN members. In this case, there is an average decrease of -0.12% in the maximum scenario, -0.02% in the minimum scenario, and -0.03% in the average scenario. Imports of finished goods and goods for private consumption suffer two types of effects: substitution and income. Due to the income effect, individuals demand fewer products when their prices increase and, because of the substitution ef-fect, domestic goods, which are now cheaper in relative terms, replace imported goods. The effect on consumption will depend on which of the two effects is greater. Among the results that the model yields, private consumption decreases by ‒0.14%, which shows that the income effect predominates.

Impact on Ecuador’s balance of trade

Ecuador’s trade surplus with the European Union increases $15 million annually on average for the 2011-2015 period, during which the Ecuador-EU agreement covers all production sectors. In contrast, when the banana industry is not includ-ed in negotiations, the bilateral trade balance decreases $106 million annually on average for the 2011-2015 period.

Ecuador’s admission into Mercosur has a negative effect on its bilateral balance of trade. From 2012 to 2015, the trend in the Ecuador-Mercosur balance of trade diverges for each of the scenarios. It deteriorates both in the free trade zone sce-nario and in the common external tariff scenario. We can see that although trade liberalization with Mercosur favors imports, it leads to increased exports as well. Nevertheless, considering the total balance of trade, the change in relation to the baseline scenario is minimal, inasmuch as it results in a redistribution of trade and a growth in total exports and imports, even though the difference between them remains very similar to the scenario without an Ecuador-Mercosur integra-tion agreement.

Moreover, if Ecuador withdraws from the CAN, the imposition of tariffs does not cause distortions in the balance of trade, as this is maintained despite the decrease in imports and exports. That is, the average balance of trade with Co-lombia over the 2012-2015 period continues to be negative, trade with Bolivia is almost non-existent, and a trade surplus is maintained with Peru, due to the high levels of oil exports.

Impact on tax revenue

The elimination of Ecuadorian tariffs in the FTA‒E.U. scenario creates a tax rev-enue loss of $107 million per year between 2011 and 2015, equivalent to 0.2% of GDP on average: This agreement implies the elimination of tariffs on imports from the European Union, and the redirection of imports towards the European Union also creates a drop in revenues.


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If Ecuador were to join Mercosur, the effect on tax revenues would be positive in all simulations. The scenarios that pose the adoption of a common external tariff over a period of five years, both outside and within the CAN, represent the greatest increase in tax revenue (0.48%).

On the other hand, when analyzing Ecuador’s withdrawal from the CAN, we see that the positive effect that the imposition of tariffs would have could be offset by a decline in private consumption. This would generate less revenue from indirect taxes such as the Value Added Tax (VAT) and the Special Con-sumption Tax (SCT). However, as with the above variables, the negative effect is maintained in all three potential scenarios, although only slightly or negligi-bly (-0.04% in the maximum scenario and -0.07% in the minimum). Undoubt-edly, the decrease in tax revenues is similar in all scenarios in which Ecuador eliminates import tariffs.

In general, at the level of macroeconomic variables, the effects of an FTA with the European Union and of Ecuador’s entry into Mercosur are positive regard-ing production, consumption, and investment, with results that are inverse to those of Ecuador’s withdrawal from the CAN. However, it is important to em-phasize that both the positive and negative effects are minimal. (See Table 3.)

Table 3

Average Macroeconomic Results 2011-2015 (Percentage Deviations in Relation to the Baseline)


Privateconsump. 0,5 0,1 0,4 0,2 0,1 0,1 0,2 0,2 -0,01 -0,03 -0,01Investment 0,5 0,1 0,4 0,2 0,1 0,0 0,3 0,3 -0,01 -0,05 -0,01Exports 0,8 0,2 0,5 0,4 0,1 0,3 0,7 0,8 0,00 -0,02 -0,01Imports 1,1 0,2 0,9 0,4 0,2 0,3 0,7 0,7 -0,01 -0,05 -0,02GDP at market price 0,3 0,1 0,3 0,1 0,1 0,0 0,2 0,2 0,00 -0,02 -0,01Indirecttaxes 0,6 0,1 0,5 0,2 0,1 0,0 0,5 0,5 -0,01 -0,05 -0,01GDP at factor cost 0,3 0,1 0,3 0,1 0,1 0,0 0,2 0,2 0,00 -0,02 -0,01

Indicator FTA betweenEcuador and European

Union (%)

Ecuador’s Entry into Mercosur

(%)

Ecuador’s Withdrawal from the CAN (%)

fta unilat unilat-eu

fta -

nb

unilat -nb

fta union union2

Min-scenario

Max-scenario

Avg-scenario

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Impacts on Various Sectors: Winners and Losers

The sectoral results reveal that an FTA with the European Union would rein-force the existing bilateral trade pattern in Ecuador: exporting primary goods (agricultural and fishery) and importing industrial commodities. Likewise, Ecuador’s entry into Mercosur under the three potential scenarios would ben-efit primary sectors and affect the producers of goods with a higher degree of industrialization, including sectors that the government considers strategic. On the other hand, in the scenario of Ecuador’s withdrawal from the CAN, we should note that the imposition of tariffs among member nations creates neg-ative variations, mainly in the manufacturing sectors, which can be attributed to the increase in prices for imported inputs, which limits production in these sectors. (See Table 4.)

Table 4Winning and Losing Sectors


Conclusions

The aggregate result of an Ecuador-E.U. FTA is minimal, whereas Ecuador’s entry into Mercosur would have an expansive effect on the economy. These results oppose those of other studies that affirm that free trade agreements

Trade Agreement

Sectors

Winners Losers

Free Trade Agreement

with the European

Union

- Industrial manufactures- Bananas, coffee, and cacao (bananas represent 90% of this sector)- Fish- Other processed foods- Construction (due to investment growth)

Ecuador’s Entry into the Common

Market of the South (Mercosur)

- Bananas, coffee, and cacao- Fish- Petroleum

- Other food items, including processed food (strategic sector, since this sector includes bever-ages)

- Agricultural products other than banana, coffee, or cacao

Ecuador’s With-drawal from the

Andean Community of Nations (CAN)

- Fish- Metallurgical industry

- Machinery


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contribute in an important way to economic growth. In all three scenarios examined above, GDP, private consumption, and exports increase.

As for the balance of trade, an FTA between Ecuador and the European Union affects imports more than exports, causing deterioration in the bilateral bal-ance of trade. In this sense, Ecuador’s entry into Mercosur also has a negative impact. However, considering the overall balance of trade, the change from the baseline scenario is minimal, inasmuch as it produces trade redistribution and growth in total exports and imports, but in such a way that the difference between both remains similar to the scenario without an Ecuador-Mercosur integration agreement. Almost the same situation occurs if Ecuador withdraws from the CAN. This withdrawal would not alter the trend in Ecuador’s balance of trade with its Andean peers: Ecuador’s balance of trade with Colombia would continue to be negative; with Bolivia there would be almost no trade flow; and with Peru a surplus trend would be maintained, thanks to oil exports.

In fiscal terms, the elimination of tariffs resulting from an Ecuador-E.U. FTA would generate a loss in tax revenue. This loss is produced in two ways: by re-ducing tariffs on imports from the European Union and by redirecting toward the European Union imports that Ecuador receives from other countries. On the other hand, Ecuador’s entry into Mercosur has a positive effect on tax rev-enues, especially if it adopts a common external tariff. In contrast, the increase in tax revenue due to the imposition of bilateral tariffs generated by Ecuador’s withdrawal from the CAN is offset by a decline in private consumption.

The sectoral analysis confirms that the banana industry would benefit the most from an FTA between Ecuador and the European Union and from Ecuador’s entry into Mercosur. This is due to the fact that a great deal of Ecuadorian products would enter the European market facing zero tariffs due to the GSP+. The only Ecuadorian product that faces a relatively high tariff is bananas, which represents 36% of Ecuador’s total exports to the European Union. An-other sector that would benefit from the three trade policy options analyzed above is the fishery industry. However, we must mention that the winning sectors are producers of traditional primary goods, which reinforces Ecuador’s traditional system of production and opposes the strategy for insertion into the global market specified in the National Plan for Good Living, a plan that seeks to diversify Ecuador’s export basket and to modify the country’s system of production to incorporate industry with higher added value that, according to the results of this study, would be the losers in the trade agreement scenarios presented here.

For these reasons, it is necessary to frame trade agreements within the param-eters not only of trade policy, but also within a development strategy; that is to say, agreements for true development. At this historic juncture, Ecuador is looking inward in order to achieve endogenous development that is balanced and socially just. Hence, trade agreements should coincide with government

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strategy and allow the country to astutely insert itself into the global market in a way that increases the production of goods for domestic consumption and the export of goods with a high level of vertical and horizontal integration that will generate the knowledge and infrastructure necessary to produce new goods with greater added value.

Footnotes

1. For a detailed description of this model, see Cicowiez & Zamorano, 2011. The de-tails of all changes made to the model for each of the three studies can be reviewed in the original documents: Cicowiez & Hugo, 2011; Aguiar & Sáenz, 2012; and Muñoz & Sáenz, 2012. 2. Trade redirection (trade diversion) occurs if the integration process diverts trade from more efficient producers or exporters to Ecuador, to exporters less efficient than Mercosur that can sell their goods more cheaply through the new tariff structure.

References

Aguiar, V. & Sáenz, M. (2012, March 12). Impactos macroeconómicos del posible ingreso del Ecuador al Mercosur (FLACSO-MIPRO Centro de Investigaciones Económicas y de la Micro, Pequeña y Mediana Empresa Working Paper). Retrieved from http://www.mipymesecuador.com/test/images/pdf/2012_Impactos_macroeco-nomicos_del_posible_ingreso_del_Ecuador_al_Mercosur.pdfAnnan, K. (1997, April 22). Discurso ante el Consejo de Relaciones Exteriores en Nueva York. Retrieved February 23, 2012 from http://www.un.org/spanish/aboutun/sg/reflexka.htmBalassa, B. (1961). The theory of economic integration. Homewood, Illinois: Richard D. Irwin Inc.Axline, W.A. (1981). Review essays. Latin American regional integration: Alternative perspectives on a changing reality. Latin American Research Review 16(1). Baer, W., Cavalcanti, T., & Silva, P. (2002). Economic integration without policy coordination: The case of Mercosur. Emerging Markets Review 3, 269-291. Retrieved January 11, 2012 from http://www.econ.cam.ac.uk/faculty/cavalcanti/EMR02.pdf Central Bank of Ecuador. (2008, January-February). Ecuador: evolución de la balanza comercial. Retrieved December 14, 2011 from http://www.bce.fin.ec/documentos/Es-tadisticas/SectorExterno/BalanzaPagos/balanzaComercial/ebc200802.pdfCicowiez, M. & Hugo, J. (2011). El tratado de libre comercio con la Unión Europea: efectos económicos y distributivos para Ecuador. In J. Hugo (Ed.), El retorno de las carabelas: Acuerdo Comercial Multipartes entre Ecuador y la Unión Europea. Quito: FLACSO Ecuador.Cicowiez, M. & Zamorano, A. (2011). MACEPES extendió para socios comerciales para Ecuador. Quito: FLACSO Ecuador.Ecuador estudia ‘muy seriamente’ su ingreso al Mercosur, asegura Correa. (n.d.). Metroecuador. Retrieved February 3, 2012 from http://www.metroecuador.com.ec/18918-ecuador-estudia-muy-seriamente-su-ingreso-al-Mercosur-asegura-correa.htmlFeng, Y. & Genna, G. (2003, May). Regional integration and domestic institutional homogeneity: A comparative analysis of regional integration in the Americas, Pa-cific Asia and Western Europe. Review of International Political Economy 10(2), 278-309.


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La Cancillería pidió una reunión de la CAN. (2011, October 14). El Comercio. Re-trieved December 14, 2011 from http://www.elcomercio.com/negocios/Cancille-ria-pidio-reunion-CAN_0_571743010.htmlMesquita Moreira, M. (2007, May). Trade costs and the economic fundamentals of the Inititiave for Integration of Regional Infrastructure in South America (IIRSA) (In-ter-American Development Bank Working Paper No. 30. Integration and Regional Programs Department). Retrieved fromhttp://www.iadb.org/intal/intalcdi/PE/2007/00213.pdfMuñoz, D. & Sáenz, M. (2012, January). Impactos macroeconómicos de la salida del Ecuador de la Comunidad Andina de Naciones (CAN) en la economía ecuatoriana (FLACSO-MIPRO Centro de Investigaciones Económicas y de la Micro, Pequeña y Mediana Empresa Working Paper). Retrieved from http://www.industrias.gob.ec/wp-content/uploads/downloads/2012/08/2012_Impactos_macroeconomicos_de_la_salida_del_Ecuador_de_la_CAN_en_la_economia_ecuatoriana.pdfPerroux, F. (1965). The IV French Plan (1962-65). National Institute of Economic and Social Research: University of Michigan.Quevedo, F. & Villela, L.A. (2003, August). Regional integration: Strategy document. Inter-American Development Bank. Retrieved December 19, 2011 from http://idb-docs.iadb.org/wsdocs/getdocument.aspx?docnum=351858

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UNDERSTANDING CHINA: FUNDAMENTAL COMPONENTS OF AMUTUALLY BENEFICIAL AGENDAMilton Reyes

Despite the fact that the economic relationship between Ecuador and China has increased significantly over the last decade, several factors have imped-ed the promotion of Ecuadorian interests, thus restricting commercial trade, investment, and financing, the constituent elements of a mutually beneficial interaction.

Much of the misunderstanding between China and Latin America—the latter regarded as a continuation of the so-called American Pacific Rim—is based on limited comprehension of Chinese culture, politics, economics, and ways of negotiation. The Asian giant continues to be an enigma for our region, perceived as an extremely complex, exotic, and even threatening civilization. Given that collective representations are a central component of society and therefore of the relationships between the state and society, it is not difficult to deduce that these representations also provoke actions and create limitations in the sphere of decision-making with respect to international politics.1

This paper has two objectives: first, to characterize the predominant Ecuador-ian and Latin American perspectives regarding China as an emerging pow-er, as well as the internal contradictions inherent to these perspectives; and second, to expose the limitations and opportunities that the relationship with China offers in the current context. Finally, we will present some basic prop-ositions for the construction of an immediate agenda that will strengthen and expand our relationship with China, guided by the search for mutual benefits.

Images and Representations of China

As Yuhe Tang says, “The image of China and the Chinese has already ap-peared for almost 100 years on North American movie screens and, as part of its culture, Hollywood has its own style for describing and modeling the Chinese image. This image does no more than reflect prejudices that have persisted to the present day” (Yuankai, 2011, p. 54). Pun Yuanyuan Pu is in agreement:

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...under the domination of racial discrimination and the mentality of orien-talism, Hollywood has stained China, and the East in general, with a tint of mystery and mysticism. Many dramatists have modeled Chinese images on mere rumors or floating opinions: yellow skin, tricks and intrigue, a long braid down the back, unrecognizable language, mysticism, and paganism” (quoted in Yuankai, 2011).

This is how certain images originated and spread—the “Chinese male with the female persona,” (Yuankai, 2011, p. 55), burlesque performances such as those of Detective Charlie Chan, those images related to the “rumor of the yel-low danger that originated in the massive exclusion of Chinese laborers in the United States in the late nineteenth century).”2 Over the last several decades, images of civilians living in precarious conditions under the domination of the Communist Party have also become plentiful.

Of course, this imagery transforms at the pace of China’s rise as a global pow-er. However, recent positive assessments of the Asian country in the world of cinema, such as Mulan or Kung Fu Panda, have received various criticisms, including the affirmation that “they only serve to open the Chinese market, and their main purpose is to generate profits,” or that “due to the financial crisis, the developed countries of the West have begun to pay closer attention to the role that China and its economy are now playing” (Yuankai, 2011, p. 54, 56).

These examples account for the type of imagery that has been re-appropri-ated within Latin America; even more so when, through the construction of images of dependence3 and by their own practices of imperialism,4 the former colonies, and especially their “social forces in the struggle over hegemony” (henceforth referred to as “hegemonic social forces” or HSF), reproduce and even amplify representations of their old and new metropolises over popula-tions previously considered peripheral.

Thus, in Ecuador, and to a certain extent in other parts of the region, we can note the existence of at least three dominant representations of China, con-structed by hegemonic social forces, the traditional left and pessimistic social movements, and the developmentalist and optimistic sectors. Each represen-tation is constructed on the basis of economic interests and specific political viewpoints, which are briefly reviewed below.

Understanding China based on discourse and rhetoric from the social forces for the struggle over hegemony

To understand the types of rhetoric and practices constructed on the basis of hegemonic social forces, especially the traditional ones, we should first place these within a continuum of interests defined by corporatism and paternal-ism—in regard to their relationship with the state and other social forces—and by a vision that drives, as a realist necessity, Ecuador’s articulation with the

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principles and interests of the continental hegemon and of the free and civi-lized world (i.e. the economies of the free market and liberal democracy), a political and ideological perspective that, with its high degree of global artic-ulation, aims to maintain the social order.

These HSFs are heirs to the oligarchic project and they reconstructed part of their agenda with the authoritarian, bureaucratic projects of the second half of the twentieth century, especially those in the Southern Cone. They considered structural adjustment inevitable and took refuge under the supposedly techni-cal and neutral dogma of the liberal economicist project (erroneously assim-ilated as mere neoliberalism), which emphasized, in general terms, the need to consolidate a program of “minimal state, the free market, privatization of certain productive sectors overseen by the state, and decentralization” (de la Torre, 1994). In practice, what has been implemented since the late 1980s has been an unorthodox reproduction of the Washington Consensus, whose ide-ology was, in spite of everything, less focused on privatizing than the agenda taken up by its counterpart, the Latin American evangelists.

Traditional HSFs copy and amplify the proposal originating in the North that “the United States is perceived as a strategic ally and the main trading part-ner, on whom is bestowed the role of legitimate mediator of the International Order” (Reyes, 2010, p. 51), even though the appropriation and reworking of these discourses would be tinted by private interests that compete with those of other social forces regarding the agenda for state transformation and the formula for production, a process by which “the clash of competing col-lective images proves the potential of alternative paths of development and raises questions concerning the possible material and institutional basis for the emergence of a different structure” (Cox, 1993, p. 158).

Thus, in Ecuador there is a strong and recurring image among those analysts sheltered by the neoliberal rhetoric transmitted by the media—and reintro-duced, in turn, in the discourse of international HSFs and their local allies—in which China is characterized as a voracious rising power, predatory when the time comes to close the deal, deserving of mistrust; an image that, through contrast, depicts a more glowing image of economic relationships with the centers of world capitalism and international banking, a continuum of the international community and the “civilized world.”

This perspective fosters a reductionist belief that doing business with the West is rational and advantageous, while doing the same with China is con-sidered irrational or, at the very least, worthy of suspicion and extremely disadvantageous. These analysts ignore the fact that, while the maxim in Western business ethics is, at best, “business is business,” its equivalent in China is “business is a win-win situation”: Even if the profits are few, they are shared among many.

Understanding China: fundamental components of a mutually beneficial agenda | Milton Reyes

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However, due to the design of the political-ideological project that proposes specific agendas regarding how the economy should operate, different tactics are presented, guided by a strategy that seeks to reinforce the maintenance of the established order, or at least to minimize the possibility of the emergence of another development structure, which would imply the rise of discourses and practices that challenge the HSFs. Thus, we can distinguish at least two operational movements, both with their corresponding perspectives on the is-sue of China:

1. One that coincides “with a pragmatic vision that enables HSFs to recognize their own immediate interests, and thus identify the relevance of the econom-ic prospects that generate Chinese growth” (Reyes, 2010, p. 53). Here, Chi-nese-Ecuadorian relations are seen primarily from the commercial and eco-nomic perspective, which assumes coherent interests within the state, linked with the rhetoric of: the natural comparative advantages that exist within the international division of labor, the expansion of markets based on a model theoretically oriented towards exportation, but that in practice leads to the re-commoditization of the economy, and increasing investments in transna-tional industries that transfer Fordist production methods without generating high reinvestment or value-added rates (Cox, 2010).

2. Another that reproduces negative images of China, despite the fact that the relationship could benefit the interests of the HSFs themselves. In this sense, this discourse is based on the continuation and amplification of the images of dependency and imperialism, as already noted, such as those that warn of the dangers of an intensified relationship with an authoritarian state and society, the communist threat, the inferior producer in relation to the capitalist cen-ters, and its role as a disloyal competitor to the “civilized centers” of the cap-italist world. This rhetoric suggests several challenges to Chinese investment and financing, based on supposed technical and ethical analysis of bilateral projects, behind which lurks the fear of growing trade between countries that find themselves developing a new type of relationship to the global econom-ic order, and whose success makes the consolidation of emerging “neo-na-tional populist” projects, “neo-developmentalist” projects, or, according to some analysts, “post-neoliberal” projects even more viable.

China, according to the traditional left and the pessimistic social movements

The orthodox leftist sectors and the most heterodox social movements also have their representations of China, in which a rhetoric based on utopia often predominates, displaying neither a guide for strategic action nor tactical flexi-bility, which are basic elements for promoting viable paths towards the struc-tural transformation of the prevailing order, increasingly supported, according to these discourses, by economic power and the use of force on a global scale, and decreasingly by complex hegemonic elements. On the basis of this reduc-

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tionist view of the state-society dichotomy and its relationship with the world order, one encounters the following viewpoints on China:

1. The belief that China abandoned the true utopia of the global communist revolution; subsequently, it became a state and society that reproduces all the vices of capitalism, among them the temptation to deploy predatory actions in the international context.

2. A second viewpoint that, in a certain sense, corresponds to those of the HSFs, and that maintains that China only seeks to make a profit off of third world countries at the expense of our national economies.

3. Lastly, the belief that during its ascent, China is destined to become a power that will reproduce the same exclusionary and vertical characteristics typical of the hegemony exercised by other recent empires, specifically those of a capitalist nature.

These positions reproduce the analyses and discourses of a simplified matrix that, although based on realpolitik, does not make clear why states process their interests differently, and why there are no essentialities to guide deci-sion-making—as each case is addressed according to particular dynamics, resulting from the mutual influences and impacts between the state-society relationship and between this relationship and the world order, further influ-enced by multiple historical factors, ideas, and material and institutional ca-pabilities, all of which are interrelated components that cannot be determined mechanically by any means (Cox, 1993, pp. 142-156).

Other perceptions that have been constructed at this level of analysis present China as imperialist. However, if we return to the ideas of Said and Doyle, we can characterize imperialism as:

...the practice, the theory, and the attitudes of a dominating metropolitan center ruling a distant territory.... As Michael Doyle puts it: “Empire is a relationship, formal and informal, in which one state controls the effec-tive political sovereignty of another political society. It can be achieved by force, by political collaboration, or by economic, social, or cultural de-pendence. Imperialism is simply the process or policy of establishing or maintaining an empire...” (Said, 1993, p. 9).

Upon comparing this image with the reality of China and its need for economic development, we find that despite increased relations with other states within the world order, its main interest lies in solving three domestic issues: those related to its territorial integrity, such as problems involving Xinjiang Prov-ince, Taiwan, and the Tibetan region; the complicated process of integration of its more than 50 nationalities; and the material reproduction of its population.


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Therefore, China would not be interested in initiating conflicts with other re-gions, precisely because that would mean a weakening of its economic sector. Additionally, China is facing a demographic problem: Its population is rapidly aging without a generational replacement to guarantee retirements and push the country towards accelerated development. This is exactly why China’s economy is a primary objective for the state, and is well above external mili-tary interests (Reyes, 2011, p. 209).

One could conclude that we do not find ourselves faced with a hegemonic project of the international authoritarian type based on physical force—given its scant legitimacy—nor are we facing imperial aspirations. On the contrary:

China, on principle, creates spheres of economic cooperation, relation-ships, and connections (even in the international political arena) that are more encompassing than merely commercial connections (in contrast to Cuba, Venezuela, Brazil, Mexico, or Peru). However, we should also no-tice that the Chinese state recognizes the importance of specific interna-tional actors, and generates specific policies for its bilateral relationships based on a pragmatic viewpoint and traditional respect for the internal processes of other countries (not only as its public face [mianzi]). These bilateral relationships are formed according to the degree of relevance that the states represent for Chinese interests and the degree of affinity or cor-respondence-reciprocity (in the case of Peru, for example, with the enor-mous number of citizens of Chinese ancestry). Because of this, Professor Shi Yinhong believes that “China treats other countries as they treat her” (Reyes, 2010, p. 55).

China, according to developmentalist sectors and optimists

These sectors accept a representation of China that identifies benefits in the growth and intensification of its relationship with Ecuador. We can, however, distinguish two differentiated positions:

1. One that we can call optimistic but with reservations, which recognizes China as an opportunity, without ignoring the risks it represents to local pro-duction. This position maintains a certain distrust of a relationship consid-ered as asymmetrical: It believes that China has enormous bargaining power based on its economic resources and its position within the world order. This position does not take into account the fact that Ecuador has little bargaining power; the result of facing emerging powers of other cultural agendas, and in the case of China, of facing another civilization.

In this same group we find import and export sectors, which have been con-solidating business opportunities between the two countries, and believe that the current limitations are established by the current government, by refusing to sign a free trade agreement. These sectors do not understand the strategic

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social character of Ecuador’s economic policy, nor two relevant aspects of the Chinese reality: that a signature is not a prerequisite to finalize business trans-actions or to make strategic alliances; and that with or without an FTA, the state’s presence will always be essential when doing business, even regarding Chinese and Ecuadorian private economic sectors.

2. Another perspective, “pragmatic optimism,” believes that relations between Ecuador and China are the best they can be within the bounds of what is possible, and that production and financial investment have been negotiated in the best possible terms. This perspective assumes that China represents enormous challenges for negotiation and that, given the actual conditions and asymmetries between the two countries, the agreements reached are a bench-mark of what is feasible. Therefore, we also find ourselves faced with a prag-matic viewpoint that suffers from ignorance of Chinese cultural constructions in business contexts—situations requiring a principle of mutual benefits and the attainment of even greater advantages in bilateral relationships.

Compared to the previously mentioned viewpoints, this paper proposes an-other optimistic approach, which maintains that we can overcome limits by considering some of the most elemental features of Chinese society.

The Limits and Opportunities of the Relationship

We propose that China-Ecuador relations are indeed producing beneficial re-sults, and that existing problems are due to an increase in interactions: With-out contact there are no disagreements. Nevertheless, we want to point out two challenges:

1. Situations of negotiation, in which mutual understanding is indispensible for establishing trust that guarantees shared profits.

2. The need to expand political and economic connections without creating a subordinate relationship that reproduces the practices of dependence that have characterized Latin America’s relationship with the continental hegemon and other traditional centers of global capitalism. Ecuador, and the whole region, must also consider China’s sustained increase in political power and its econo-my when imagining the construction of a new world order and the creation of new forms of articulation within the global economy.

Key elements for approaching China5

We must remember that China possesses an ancient culture that, despite its historical development, has maintained a certain degree of continuity over the centuries. A fundamental trait that persists is the philosophy of Confucius (551 BC - Spring and Autumn Periods), also known as Kong-zi (孔子). The responsibilities and regulations outlined in this philosophy seek “a society


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organized into a pyramid in which the relations between superiors, inferiors, and equals—for example, relationships based on friendship–should be regu-lated meticulously, even in their outward manifestations, by Li, that is to say, by ritual, ceremony, and etiquette” (Arnaiz, 2004, p. 4).

Another key element of China’s culture that can help us understand its po-litical and negotiating process is its conception of time, which is long - term and of a strategic nature. Our comprehension of Chinese time is highly useful when establishing enduring, mutually beneficial relations. Other important concepts are guanxi, mianzi, and the Chinese family.6

It is erroneous to consider guanxi as a synonym for “relationships” or “con-tacts.” This social and cultural institution constitutes a fundamental applica-tion of the practices of distinct social sectors, economic actors, and even state actors. Because “guanxi represents an integral concept composed of three analytical dimensions–the affective, the normative, and the instrumental”–it is necessary to understand that the most basic level, the one with the fewest benefits, is the most instrumental level: It prevails “in the area of relationships or social interactions linked to trade processes,” and demonstrates “a certain weakness due to its recent appearance, competing at a disadvantage with other guanxi that were created decades ago” (Bueno, Salmador, & Li, 2006, pp. 97-98). On the other hand, guanxi based on a common social identity:

...implies different exchange processes, both intangible (feelings) and tan-gible (things), even if the degree of their manifestation varies according to the type of guanxi. “Socio-affective guanxi” is basically linked to family relationships and to friendships, whose social interaction principally im-plies an exchange of the feelings of love and belonging (Bueno, Salmador, & Li, 2006, pp. 97-98).

Hence the importance of identifying certain common elements that facilitate the construction of identity guanxi based on the affective dimension and long-term interest, for example, in the ludic sense, that would allow identity-oriented meetings and access to comparative advantages when facing other transnational economic actors, and the common notion of close interpersonal space (in con-trast to other societies, especially in the West, that pose a more distant interper-sonal space). This would allow for more rapid and efficient negotiation, as well as improved identity relations, which could, in turn, lead to new guanxi.

International political and economic opportunities7

China is a country on the rise, with impressive development often attributed to its economic liberalization, but in which the state has played a central role. China positioned its economy over the last decade to be the fastest growing in the world, moving from the eighth largest in the world in 2002 to the sixth largest in 2004, the fourth largest in 2006, the third largest in 2009, and finally

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the second largest in 2010. In this context, there is real possibility to imple-ment the following proposals:

1. Access to cooperation programs, such as those carried out by the Associa-tion of Southeast Asian Nations (ASEAN), plus China, Japan, and South Ko-rea, as well as the connection of this organization to its South American and Latin American counterparts, which is still under construction.

2. The securing of investments, the expansion of markets, and access to prod-ucts, capital goods, technological resources, etc.

3. The implementation of policies aimed at increased complementarity, and even the possibility of initiating “supply chain processes” able to bolster sus-tainable economic growth in the region, which in turn would positively impact Chinese production.

4. The construction of an alternative international order that would lead to improved representation of South American countries on the global institu-tional scale, as well as progressively reduce dependent relations.

Opportunities for Ecuador and Latin American that follow a Critical Theory framework include overcoming our dependence on international hegemonic actors, consolidating sovereignty, and forming an international, multi-po-lar order, actions that intend to implement economically and commercially equitable horizontal political relationships that adhere strongly to interna-tional laws.8 Considering the previous points, I will cite three examples of successful negotiation processes and of the expansion of mutually beneficial relationships:

The case of Chile and China: The free trade agreement between these two countries, in effect since October 2006, revealed that:

92% of Chilean exports enter the Chinese market duty-free, while the deduc-tion for Chinese products will reach 50%. The said agreement considered: facilitating the exchange of consumer goods between the two countries; in-creasing investment flows and the transfer of vanguard technology and infra-structure for Chile; and developing an academic exchange program so that Chinese and Chilean leaders could become familiar with the business envi-ronment of the respective countries (Witker, 2007, p. 44-45).

The case of Venezuela and China: There are public-private partnerships such as Petrosinovensa, which was established bilaterally, that could increase crude oil exploitation up to 330,000 barrels of oil per day for 2014 (“Empresa mixta de Venezuela,” 2012). One can also point to the Venezuelan telecommunica-tions company, Vetelca, which has 85% Venezuelan and 15% Chinese owner-ship, and the jointly-owned factory, Electrónica Orinoquia, which produces 2


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million cell phones annually, and was established with a 65% stake from the Venezuelan government (through Telecom Venezuela) and a 35% stake from the Chinese company Huawei. There is also a common investment fund be-tween the two countries of 20 billion dollars, among other projects.

The case of Brazil and China: One of the issues of concern for the South American giant was its disadvantageous balance of trade that caused conflicts, especially with Sao Paulo’s industrial sectors. However, during a meeting in April 2011, Brazil and China signed agreements to reinforce cooperation in petroleum and aviation technology. Embraer negotiated the purchase of 20 E190 aircraft from the China Southern company and another 15 E190 aircraft from Hebei Province. Sources from the Brazilian delegation announced that the average price of the investment was about $40 million per plane (“Brasil y China: acuerdos millonarios,” 2011). For its part, Huawei announced the decision to build a research center in the Sao Paulo area, with investments of between $300 and $400 million.

According to Minister Fernando Pimentel, in the fields of technology, science, and innovation alone, Chinese investment in Brazil exceeds $1 billion (“Brasil y China firman 22 acuerdos,” 2011). The two countries also agreed to develop common strategies to add value to exchanged food products.

These examples do not even represent the full potential in terms of mutual benefits, precisely because the relative ignorance concerning Chinese cultural, political, and economic processes has prevented the development of a specific initiative, the absence of which represents a constraint for negotiating.

Towards an Urgent Win-Win Agenda

Below we outline below some of the most important elements of an agenda that would achieve the greatest benefits in our relationship with China and deepen the opportunities that this Asian giant represents.

Analyzing and overcoming issues that produce misunderstandings

To avoid misunderstandings, academic and cultural exchanges should be cre-ated that take into account scientific and technological needs, and that recog-nize the contributions that high-level relations in scientific production could achieve (including the social sciences) in order to strengthen mutual under-standing. It is necessary to overcome the idea that negotiation is a technical skill and is based on certain universally valid truths, an idea that can lead to misunderstandings and impede the building of identity relationships. The cul-tural elements present in negotiation processes do not operate intrinsically, but rather are cultural constructs that, in the specific case of China, are based on trust and oriented towards long-term, mutual benefits.In this sense, our priority is to carry out strategic interdisciplinary research,

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and implement programs rooted in transcultural business, with the goal of encouraging the understanding of central cultural elements, among them pro-tocol rituals, that are oriented towards recognition and mutual respect. (Let’s recall the concept of mianzi.)

On the other hand, it is necessary to understand that the appropriate moment for resolving any disagreement between private and public companies, Chi-nese and Ecuadorian, is during international dialogue that should be com-plemented with ongoing respectful and sincere interactions, as well as with processes of acculturation for Chinese businessmen and officials, directed at understanding the differences between our cultures regarding labor issues, in-cluding discipline and hierarchy.

Ecuador as a gateway to understanding the region

It is undeniable that Ecuador, due to its geographical position and the Man-ta-Manaus axis, can be a gateway to the region. There are various other qual-ities that position us as such:

1. Our efficient and internationally recognized Spanish language in-struction, an attraction for Chinese students who could become “cul-tural translators” for companies and institutions in their country. We may also add that quite a few of these students could become future managers employed by the government, and could therefore stimulate a process of long-term, mutual understanding.

2. The regional and political importance of Ecuador as the headquarters of the General Secretariat of Unasur, including the project for the estab-lishment of Unasur’s School of Government in Quito.

3. The construction of spaces for academic debate in various social science disciplines, implemented specifically by Ecuadorian universi-ties due to the political environment in Ecuador, which has turned the country into a space for reflection, constantly drawing recognized Latin American and international experts and thinkers.

Increasing relations between China and Latin America

Ecuador supports increased communication between China and Latin Ameri-ca due to our integrationist perspective; therefore, we should propose the fol-lowing actions immediately:

Response to the White Paper: The most obvious challenge is that Latin Amer-ica and Ecuador must offer a response to the Chinese agenda expressed in the White Paper for Chinese-Latin American Relations (published in No-vember 2008), a little-known and infrequently-debated text that has not


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been incorporated proactively by policy makers into respective regional and political agendas.9 As the headquarters of Unasur, Ecuador is capable of of-fering the space necessary to develop this response.

Convoking the Second Convention of Think Tank Networking between China, Latin America, and the Caribbean: This convention aims to complement the first meeting held in Beijing in November 2010, during which China took the initiative and Latin America was unable to respond with appropriate measures aimed at mutual understanding. This would be an opportunity to establish high-level political and academic contacts. This convention would be immensely helpful in promoting opportunities for dialogue with a reci-procity-based focus.

Proposing and confirming Ecuador as the site for the Seventh China-Latin America Business Summit in 2013: This would be a space for highlighting the connection between the state, the domestic private sectors, and the promo-tion of research centers as an efficient development model that is compatible with the need for establishing supply chain processes between China and Latin America.

Developing joint initiatives through which the Chinese public can get to know Ecuador and the region: Because Ecuador does not allocate large amounts of resources towards the promotion of tourism, an appropriate strategy would be to partner with other countries to enhance the visibility of our region among the Chinese public. For example, France, Italy, Russia, and Spain have carried out exchange programs such as the “Cultural Year in China,” based on a multidisciplinary approach. These programs are designed to gen-erate business opportunities. Two examples are the initiative, “A Spanish Year in China,” and the 2007 Chinese art festival in Spain: “The celebration of a cultural year in China by foreign countries has recently become a pow-erful tool for Western governments promoting the role of their companies” (Reinoso & Cué, 2007).

Developing supply chain processes, including joint Ecuadorian investments in China

Within the current framework, another challenge is encouraging Ecuador-ian investment in China, which could open up interesting opportunities for private and public investors who would benefit from the policy of revenue sharing, generating dividends likely to be redistributed among the respec-tive national economies. For example, there are joint investment projects between China and Cuba, “among which one is related to the hotel sector, two are linked to the production of pharmaceuticals, and two are ophthalmo-logic hospitals, operating in different Chinese cities (Díaz Vázquez, 2008).10

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Final Considerations

Having proposed the previous suggestions, we must emphasize two pend-ing tasks:

1. “China knows what it wants from Latin America. Does Latin America know what it wants in its relationship with China?” (Díaz Vásquez, person-al communication, 2011). This is a question that is still up for debate and should be subject to further deliberation, particularly in Ecuador.

2. “One should keep in mind that China is not a sponsor, a benefactor, or a philanthropic country. China has to meet the needs of 1.4 billion people in a volatile economic environment. The key lies in the ability of Latin American governments to match their own needs with the very long-term strategic vision of China .... This means becoming familiar with Chinese norms of negotiation that are different from those of the rest of the world” (Giuffré, 2010).

Hence we believe that Ecuador needs to build a permanent space for con-sidering opportunities in its relationship with China, for producing and sustaining qualitative and quantitative tools as a strategy for responding to interim challenges, and for meeting the challenge of creating a relationship based on mutual understanding and long-term benefits.

Footnotes

1. For further reading on the subject of the state and society, see Cox, 1993.2. “...which also provoked, as in the case of the film, The Bitter Tea of Dr. Yen, 1932, American filmmakers to shape the figure of the Chinese into a barbarian that threatens the West” (Yuankai, 2011, p. 54).3. This term refers to an image of self-representation among U.S. decision-makers that expresses the idea that “dependents are corrupt and we know it, but we are superior, and we call the shots” (Cottam, 1994, p. 143).4. This term refers to practices that reveal how imperial power operates not only through physical force, but also in the reproduction of cultural, moral, and social values. See Said, 1996.5. This section is based on work by the previously cited authors, as well as M. Reyes, 2011.6. For further reading on guanxi, mianzi, and the Chinese family, see Reyes, 2010.7. This section is based on work by the previously cited authors as well as Reyes, 2010. 8. We must mention here that China’s reaction to events in Libya represent an error in foresight regarding China’s international policy: Circumstances in Libya have led China to adopt a contentious position toward western interventionism, as it has also done regarding events in Syria and Iran.9. The White Paper “aims to clearly set out China’s objectives for its relations with Latin America, outlines the guiding principles of political, economic, and social


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cooperation for the short term, and promotes feasible, stable, and integrated develop-ment between the two parties” (Díaz Vázquez, 2009, p. 2).10. China and Cuba have created a legal framework to regulate investor shares in both directions.

References

Arnaiz, C. (2004, November). Confucianismo, Budismo y la conformación de valores en China y Corea (Gino Germani Institute Working Paper. Group of Far East Studies). Retrieved September 25, 2010 from http://www.uba.ar/ceca/download/arnaiz-c.pdfBrasil y China: acuerdos millonarios. (2011, April 12). Voz de América. Retrieved March 1, 2012 from http://www.voanoticias.com/content/brasil-rousseff-china-acuer-dos-millonarios-119763689/97564.htmlBrasil y China firman 22 acuerdos que impulsarán su asociación estratégica. (2011, April 13). Observatorio Iberoamericano de Asia-Pacífico. Retrieved March 1, 2012 from http://www.iberoasia.org/blog/?p=9025Bueno, E., Salmador, M.P., & Li, D. (2006). Guanxi: concepto e implicaciones en la dirección estratégica de las empresas españolas en China. Economía industrial 362, 93-101.Cottom, M. (1994). Images and interventions: U.S. policies in Latin America. Pitts-burgh: University of Pittsburgh Press.Cox, R. (1993). Fuerzas sociales, Estado y órdenes mundiales: más allá de la teoría de las relaciones internacionales. In A. Morales (Ed.), El poder y el orden mundial (pp. 119-196). San José: FLACSO Costa Rica.De la Torre, P. (1994, September 28). Notes from a conference on “Estados y cambi-os” at the Pontificia Universidad Católica de Ecuador.Díaz Vázquez, J. (2008, December). Apuntes sobre las relaciones China-Cuba. Obser-vatorio de la Política China 9. Retrieved September 11, 2010 from http://econpapers.repec.org/article/ervobschi/y_3a2008_3a09_3a6.htmDíaz Vázquez, J. (2009, January 9). China-América Latina: escalón para la cooperación. Unpublished manuscript. Retrieved March 1, 2010 from http://www.politica-china.org/imxd/noticias/doc/1231493336China-America_Latina_escalon_para_la_cooperacion.pdfEmpresa mixta de Venezuela y China producirá 330 mil barriles de petróleo diarios en 2014. (2012, February 27). Iberoamérica Central de Noticias. Retrieved March 1, 2012 from http://www.icndiario.com/2012/02/27/empresa-mixta-de-venezuela-y-chi-na-producira-330-mil-barriles-de-petroleo-diarios-en-201Giuffré, M. (2010, June). Mitos y realidades de la presencia de China en América Latina. Observatorio de la Economía y la Sociedad de China 13. Retrieved September 13, 2010 from http://www.eumed.net/rev/china/13/msg.htmReinoso, J. & Cué, C. (2007, April 10). Un año de España en China. El País. Retrieved Au-gust 21, 2007 from http://elpais.com/diario/2007/04/10/espana/1176156019_850215.htmlReyes, M. (2010, November). El rol del Estado: agenda y desafíos entre China y América del Sur. OIKOS 9(2), 37-65. ISSN: 1808-0235. Reyes, M. (2010). Investigación Taiwán: perspectivas y prospectivas sobre las opor-tunidades y desafíos para el Ecuador. Unpublished manuscript.

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Reyes, M. (2011). Investigación: agendas estratégicas. Unpublished manuscript.Reyes, M. (2011). La inteligencia china: un acercamiento histórico cultural. In F. Rivera (Ed.), Inteligencia estratégica y prospectiva (pp. 197-214). Quito: FLACSO Ecuador.Said, E. (1994). Culture and imperialism. New York: Random House, Inc.Witker, J. (2007, April). El Tratado de Libre Comercio Chile–China. China Hoy XL-VIII(4).Yuankai, T. (2011, January). Los elementos chinos en el cine occidental. China Hoy LII(1).


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‘LOSING’ THE WORLD:AMERICAN DECLINE IN PERSPECTIVE

Noam Chomsky

ISignificant anniversaries are solemnly commemorated—Japan’s attack on the U.S. naval base at Pearl Harbor, for example. Others are ignored, and we can often learn valuable lessons from them about what is likely to lie ahead. Right now, in fact.

At the moment, we are failing to commemorate the 50th anniversary of Pres-ident John F. Kennedy's decision to launch the most destructive and murder-ous act of aggression of the post-World War II period: the invasion of South Vietnam, later all of Indochina, leaving millions dead and four countries dev-astated, with casualties still mounting from the long-term effects of drenching South Vietnam with some of the most lethal carcinogens known, undertaken to destroy ground cover and food crops.

The prime target was South Vietnam. The aggression later spread to the North, then to the remote peasant society of northern Laos, and finally to rural Cam-bodia, which was bombed at the stunning level of all allied air operations in the Pacific region during World War II, including the two atom bombs dropped on Hiroshima and Nagasaki. In this, Henry Kissinger’s orders were being carried out—“anything that flies on anything that moves”—a call for genocide that is rare in the historical record. Little of this is remembered. Most was scarcely known beyond narrow circles of activists.

When the invasion was launched 50 years ago, concern was so slight that there were few efforts at justification, hardly more than the president’s impassioned plea that “we are opposed around the world by a monolithic and ruthless con-spiracy that relies primarily on covert means for expanding its sphere of influ-ence”, and if the conspiracy achieves its ends in Laos and Vietnam, “the gates will be opened wide.”

Elsewhere, he warned further that “the complacent, the self-indulgent, the soft societies are about to be swept away with the debris of history [and] only the strong […] can possibly survive,” in this case reflecting on the failure of U.S. aggression and terror to crush Cuban independence.

By the time protest began to mount half a dozen years later, the respected Vietnam specialist and military historian Bernard Fall, no dove, forecast that

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“Vietnam as a cultural and historic entity […] is threatened with extinction [as] the countryside literally dies under the blows of the largest military ma-chine ever unleashed on an area of this size.” He was again referring to South Vietnam.

When the war ended eight horrendous years later, mainstream opinion was divided between those who described the war as a “noble cause” that could have been won with more dedication, and at the opposite extreme, the critics, to whom it was “a mistake” that proved too costly. By 1977, President Carter aroused little notice when he explained that we owe Vietnam “no debt” be-cause “the destruction was mutual.”

There are important lessons in all this for today, even apart from another re-minder that only the weak and defeated are called to account for their crimes. One lesson is that to understand what is happening, we should attend not only to critical events of the real world, often dismissed from history, but also to what leaders and elite opinion believe, however tinged with fantasy. Another lesson is that alongside the flights of fancy concocted to terrify and mobilize the public (and perhaps believed by some who are trapped in their own rhet-oric), there is also geo-strategic planning based on principles that are rational and stable over long periods because they are rooted in stable institutions and their concerns. That is true in the case of Vietnam, as well. I will return to that, only stressing here that the persistent factors in state action are generally well concealed.

The Iraq war is an instructive case. It was marketed to a terrified public on the usual grounds of self-defense against an awesome threat to survival: the “sin-gle question”, George W. Bush and Tony Blair declared, was whether Saddam Hussein would end his programs of developing weapons of mass destruction. When the single question received the wrong answer, government rhetoric shifted effortlessly to our “yearning for democracy,” and educated opinion duly followed course; all routine.

Later, as the scale of the U.S. defeat in Iraq was becoming difficult to suppress, the government quietly conceded what had been clear all along. In 2007-2008, the administration officially announced that a final settlement must grant the U.S. military bases and the right of combat operations, and must privilege U.S. investors in the rich energy system—demands later reluctantly abandoned in the face of Iraqi resistance. And all well kept from the general population.

Gauging American decline

With such lessons in mind, it is useful to look at what is highlighted in the ma-jor journals of policy and opinion today. Let us keep to the most prestigious of the establishment journals, Foreign Affairs. The headline blaring on the cover of the December 2011 issue reads in bold face: “Is America Over?”

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Línea Sur | Current Affairs

The title article calls for “retrenchment” in the “humanitarian missions” abroad that are consuming the country's wealth, so as to arrest the American decline that is a major theme of international affairs discourse, usually accompanied by the corollary that power is shifting to the East, to China, and (maybe) India.

The lead articles are on Israel-Palestine. The first, by two high Israeli offi-cials, is entitled “The Problem is Palestinian Rejection”: The conflict cannot be resolved because Palestinians refuse to recognize Israel as a Jewish state –thereby conforming to standard diplomatic practice: States are recognized, but not privileged sectors within them. The demand is hardly more than a new device to deter the threat of political settlement that would undermine Israel’s expansionist goals.

The opposing position, defended by an American professor, is entitled “The Problem Is the Occupation.” The subtitle reads “How the Occupation is De-stroying the Nation.” Which nation? Israel, of course. The paired articles ap-pear under the heading “Israel under Siege.”

The January 2012 issue features yet another call to bomb Iran now, before it is too late. Warning of “the dangers of deterrence,” the author suggests that:

“[S]keptics of military action fail to appreciate the true danger that a nucle-ar-armed Iran would pose to U.S. interests in the Middle East and beyond. And their grim forecasts assume that the cure would be worse than the dis-ease—that is, that the consequences of a U.S. assault on Iran would be as bad as or worse than those of Iran achieving its nuclear ambitions. But that is a faulty assumption. The truth is that a military strike intended to destroy Iran's nuclear program, if managed carefully, could spare the region and the world a very real threat and dramatically improve the long-term national security of the United States.”

Others argue that the costs would be too high, and at the extremes, some even point out that an attack would violate international law—as does the stand of the moderates, who regularly deliver threats of violence, in violation of the UN Charter.

Let us review these dominant concerns in turn.

American decline is real, though the apocalyptic vision reflects the familiar ruling-class perception that anything short of total control amounts to total disaster. Despite the piteous laments, the U.S. remains the world dominant power by a large margin, and no competitor is in sight, not only in the military dimension, in which, of course, the U.S. reigns supreme.

China and India have recorded rapid (though highly inegalitarian) growth, but remain very poor countries, with enormous internal problems not faced by the

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West. China is the world’s major manufacturing center, but largely as an as-sembly plant for the advanced industrial powers on its periphery and for west-ern multinationals. That is likely to change over time. Manufacturing regularly provides the basis for innovation, often breakthroughs, as is now sometimes happening in China. One example that has impressed western specialists is China’s takeover of the growing global solar panel market, not on the basis of cheap labor, but by coordinated planning and, increasingly, innovation.

But the problems China faces are serious. Some are demographic, reviewed in Science, the leading US science weekly. The study shows that mortality sharp-ly decreased in China during the Maoist years, “mainly a result of economic development and improvements in education and health services, especially the public hygiene movement that resulted in a sharp drop in mortality from infectious diseases.” This progress ended with the initiation of the capitalist reforms 30 years ago, and the death rate has since increased.

Furthermore, China’s recent economic growth has relied substantially on a “demographic bonus,” a very large working-age population. “But the win-dow for harvesting this bonus may close soon,” with a “profound impact on development”: “Excess cheap labor supply, which is one of the major factors driving China's economic miracle, will no longer be available.”

Demography is only one of many serious problems ahead. For India, the prob-lems are far more severe.

Not all prominent voices foresee American decline. Among international me-dia, there is none more serious and responsible than the London Financial Times. It recently devoted a full page to the optimistic expectation that new technology for extracting North American fossil fuels might allow the US to become energy-independent, hence to retain its global hegemony for a centu-ry. There is no mention of the kind of world the US would rule in this happy event, but not for lack of evidence.

At about the same time, the International Energy Agency reported that, with rapidly increasing carbon emissions from fossil fuel use, the limit of safety will be reached by 2017, if the world continues on its present course. “The door is closing,” the IEA chief economist said, and very soon it “will be closed forever.”

Shortly before the U.S. Department of Energy reported the most recent carbon dioxide emissions figures, which “jumped by the biggest amount on record” to a level higher than the worst-case scenario anticipated by the International Panel on Climate Change (IPCC). That came as no surprise to many scientists, including the MIT program on climate change, which for years has warned that the IPCC predictions are too conservative.

‘Losing’ the world: American decline in perspective | Noam Chomsky

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Such critics of the IPCC predictions receive virtually no public attention, un-like the fringe of denialists who are supported by the corporate sector, along with huge propaganda campaigns that have driven Americans off the interna-tional spectrum in dismissal of the threats. Business support also translates directly to political power. Denialism is part of the catechism that must be intoned by Republican candidates in the farcical election campaign now in progress, and in Congress, they are powerful enough to abort even efforts to inquire into the effects of global warming, let alone do anything serious about it.

In brief, American decline can perhaps be stemmed if we abandon hope for decent survival—prospects that are all too real, given the balance of forces in the world.

‘Losing’ China and Vietnam

Putting such unpleasant thoughts aside, a close look at American decline shows that China indeed plays a large role, as it has for 60 years. The decline that now elicits such concern is not a recent phenomenon. It traces back to the end of the World War II, when the U.S. had half the world’s wealth and incomparable security and global reach. Planners were naturally well aware of the enormous disparity of power, and intended to keep it that way.

The basic viewpoint was outlined with admirable frankness in a major state paper of 1948 (PPS 23). The author was one of the architects of the “new world order” of the day, the chair of the State Department policy planning staff, the respected statesman and scholar George Kennan, a moderate dove within the planning spectrum. He observed that the central policy goal was to maintain the “position of disparity” that separated our enormous wealth from the pov-erty of others. To achieve that goal, he advised, “We should cease to talk about vague and … unreal objectives such as human rights, the raising of the living standards, and democratization,” and must “deal in straight power concepts,” not “hampered by idealistic slogans” about “altruism and world-benefaction.”

Kennan was referring specifically to Asia, but the observations generalize, with exceptions, for participants in the U.S.-run global system. It was well un-derstood that the “idealistic slogans” were to be displayed prominently when addressing others, including the intellectual classes, who were expected to promulgate them.

The plans that Kennan helped formulate and implement took for granted that the U.S. would control the western hemisphere, the Far East, the former Brit-ish empire (including the incomparable energy resources of the Middle East), and as much of Eurasia as possible, crucially its commercial and industrial centers. These were not unrealistic objectives, given the distribution of power. But decline set in at once.

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In 1949, China declared independence, an event known in Western discourse as “the loss of China”—in the U.S., with bitter recriminations and conflict over who was responsible for that loss. The terminology is revealing. It is only possible to lose something that one owns. The tacit assumption was that the U.S. owned China, by right, along with most of the rest of the world, much as postwar planners assumed.

The “loss of China” was the first major step in “America’s decline.” It had ma-jor policy consequences. One was the immediate decision to support France’s effort to reconquer its former colony of Indochina, so that it, too, would not be “lost”.

Indochina itself was not a major concern, despite claims about its rich resourc-es by President Eisenhower and others. Rather, the concern was the “domino theory,” which is often ridiculed when dominoes don’t fall, but remains a lead-ing principle of policy because it is quite rational. To adopt Henry Kissing-er’s version, a region that falls out of control can become a “virus” that will “spread contagion,” inducing others to follow the same path.

In the case of Vietnam, the concern was that the virus of independent devel-opment might infect Indonesia, which really does have rich resources. And that might lead Japan—the “superdomino” as it was called by the prominent Asia historian John Dower—to “accommodate” to an independent Asia as its technological and industrial center in a system that would escape the reach of U.S. power. That would mean, in effect, that the U.S. had lost the Pacific phase of the second world war, fought to prevent Japan’s attempt to establish such a new order in Asia.

The way to deal with such a problem is clear: destroy the virus and “inoculate” those who might be infected. In the Vietnam case, the rational choice was to destroy any hope of successful independent development and to impose brutal dictatorships in the surrounding regions. Those tasks were successfully car-ried out—though history has its own cunning, and something similar to what was feared has since been developing in East Asia, much to Washington’s dismay.

The most important victory of the Indochina wars was in 1965, when a U.S.-backed military coup in Indonesia led by General Suharto carried out massive crimes that were compared by the CIA to those of Hitler, Stalin, and Mao. The “staggering mass slaughter,” as the New York Times described it, was reported accurately across the mainstream, and with unrestrained euphoria.

It was “a gleam of light in Asia,” as the noted liberal commentator James Reston wrote in the Times. The coup ended the threat of democracy by demol-ishing the mass-based political party of the poor, established a dictatorship that went on to compile one of the worst human rights records in the world,


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and threw the riches of the country open to western investors. Small wonder that, after many other horrors, including the near-genocidal invasion of East Timor, Suharto was welcomed by the Clinton Administration in 1995 as “our kind of guy”.

Years after the great events of 1965, Kennedy-Johnson national security advis-er McGeorge Bundy reflected that it would have been wise to end the Vietnam war at that time, with the “virus” virtually destroyed and the primary domino solidly in place, buttressed by other U.S.-backed dictatorships throughout the region.

Similar procedures have been routinely followed elsewhere. Kissinger was re-ferring specifically to the threat of socialist democracy in Chile. That threat was ended on another forgotten date, what Latin Americans call “the first 9/11”, which in violence and bitter effects far exceeded the 9/11 commemo-rated in the West. A vicious dictatorship was imposed in Chile, one part of a plague of brutal repression that spread through Latin America, reaching Cen-tral America under Reagan. Viruses have aroused deep concern elsewhere as well, including the Middle East, where the threat of secular nationalism has often concerned British and U.S. planners, inducing them to support radical Islamic fundamentalism to counter it.

The concentration of wealth and American decline

Despite such victories, American decline continued. By 1970, U.S. share of world wealth had dropped to about 25%, roughly where it remains, still colos-sal but far below the end of the World War II. By then, the industrial world was “tripolar”: U.S.-based North America, German-based Europe, and East Asia, already the most dynamic industrial region, at the time Japan-based, but by now including the former Japanese colonies Taiwan and South Korea, and, more recently, China.

At about that time, American decline entered a new phase: conscious self-in-flicted decline. From the 1970s, there has been a significant change in the U.S. economy, as planners, private and state, shifted it toward financialization and the offshoring of production, driven in part by the declining rate of profit in domestic manufacturing. These decisions initiated a vicious cycle in which wealth became highly concentrated (dramatically so in the top 0.1% of the population), yielding concentration of political power, hence legislation to carry the cycle further: taxation and other fiscal policies, deregulation, chang-es in the rules of corporate governance allowing huge gains for executives, and so on.

Meanwhile, for the majority, real wages largely stagnated, and people were able to get by only by sharply increased workloads (far beyond Europe), un-sustainable debt, and repeated bubbles since the Reagan years, creating paper

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wealth that inevitably disappeared when they burst (and the perpetrators were bailed out by the taxpayer). In parallel, the political system has been increas-ingly shredded as both parties are driven deeper into corporate pockets with the escalating cost of elections—the Republicans to the level of farce, the Democrats (now largely the former “moderate Republicans”) not far behind.

A recent study by the Economic Policy Institute, which has been the major source of reputable data on these developments for years, is entitled Failure by Design. The phrase “by design” is accurate. Other choices were certainly possible. And as the study points out, the “failure” is class-based. There is no failure for the designers. Far from it. Rather, the policies are a failure for the large majority, the 99% in the imagery of the Occupy movements – and for the country, which has declined and will continue to do so under these policies.

One factor is the offshoring of manufacturing. As the solar panel example mentioned earlier illustrates, manufacturing capacity provides the basis and stimulus for innovation leading to higher stages of sophistication in produc-tion, design, and invention. That, too, is being outsourced, not a problem for the “money mandarins” who increasingly design policy, but a serious problem for working people and the middle classes, and a real disaster for the most oppressed, African Americans, who have never escaped the legacy of slavery and its ugly aftermath, and whose meager wealth virtually disappeared after the collapse of the housing bubble in 2008, setting off the most recent financial crisis, the worst so far.

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In the years of conscious, self-inflicted decline at home, “losses” continued to mount elsewhere. In the past decade, for the first time in 500 years, South America has taken successful steps to free itself from western domination, another serious loss. The region has moved towards integration, and has begun to address some of the terrible internal problems of societies ruled by mostly Europeanized elites, tiny islands of extreme wealth in a sea of misery. They have also rid themselves of all U.S. military bases and of IMF controls. A newly formed organization, Celac, includes all countries of the hemisphere apart from the U.S. and Canada. If it actually functions, that would be another step in American decline, in this case in what has always been regarded as “the backyard.”

Even more serious would be the loss of the MENA countries—Middle East/North Africa—which have been regarded by planners since the 1940s as “a stupendous source of strategic power, and one of the greatest material prizes in world history.” Control of MENA energy reserves would yield “substantial control of the world,” in the words of the influential Roosevelt advisor A.A. Berle.


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To be sure, if the projections of a century of U.S. energy independence based on North American energy resources turn out to be realistic, the significance of controlling MENA would decline somewhat, though probably not by much: The main concern has always been control more than access. However, the likely consequences to the planet’s equilibrium are so ominous that discussion may be largely an academic exercise.

The Arab Spring, another development of historic importance, might portend at least a partial “loss” of MENA. The U.S. and its allies have tried hard to prevent that outcome—so far, with considerable success. Their policy toward the popular uprisings has kept closely to the standard guidelines: Support the forces most amenable to U.S. influence and control.

Favored dictators are supported as long as they can maintain control (as in the major oil states). When that is no longer possible, then discard them and try to restore the old regime as fully as possible (as in Tunisia and Egypt). The general pattern is familiar: Somoza, Marcos, Duvalier, Mobutu, Suharto, and many others. In one case, Libya, the three traditional imperial powers intervened by force to participate in a rebellion to overthrow a mercurial and unreliable dictator, opening the way, it is expected, to more efficient control over Libya’s rich resources (oil primarily, but also water, of particular interest to French corporations), to a possible base for the U.S. Africa Command (so far restricted to Germany), and to the reversal of growing Chinese penetration. As far as policy goes, there have been few surprises.

Crucially, it is important to reduce the threat of functioning democracy, in which popular opinion will significantly influence policy. That again is rou-tine, and quite understandable. A look at the studies of public opinion under-taken by U.S. polling agencies in the MENA countries easily explains the western fear of authentic democracy, in which public opinion will significant-ly influence policy.

Israel and the Republican Party

Similar considerations carry over directly to the second major concern ad-dressed in the issue of Foreign Affairs cited in part one of this piece: the Is-rael-Palestine conflict. Fear of democracy could hardly be more clearly ex-hibited than in this case. In January 2006, an election took place in Palestine, pronounced free and fair by international monitors. The instant reaction of the U.S. (and of course Israel), with Europe following along politely, was to impose harsh penalties on Palestinians for voting the wrong way. That is no innovation. It is quite in accord with the general and unsurprising principle recognized by mainstream scholarship: the U.S. supports democracy if, and only if, the outcomes accord with its strategic and economic objectives, the rueful conclusion of neo-Reaganite Thomas Carothers, the most careful and respected scholarly analyst of “democracy promotion” initiatives.

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More broadly, for 35 years the U.S. has led the rejectionist camp on Israel-Pal-estine, blocking an international consensus calling for a political settlement in terms too well known to require repetition. The western mantra is that Israel seeks negotiations without preconditions, while the Palestinians refuse. The opposite is more accurate. The U.S. and Israel demand strict preconditions, which are, furthermore, designed to ensure that negotiations will lead either to Palestinian capitulation on crucial issues, or nowhere.

The first precondition is that the negotiations must be supervised by Washing-ton, which makes about as much sense as demanding that Iran supervise the negotiation of Sunni-Shia conflicts in Iraq. Serious negotiations would have to be under the auspices of some neutral party, preferably one that commands some international respect, perhaps Brazil. The negotiations would seek to resolve the conflicts between the two antagonists: the U.S.-Israel on one side, most of the world on the other.

The second precondition is that Israel must be free to expand its illegal set-tlements in the West Bank. Theoretically, the U.S. opposes these actions, but with a very light tap on the wrist, while continuing to provide economic, dip-lomatic, and military support. When the U.S. does have some limited objec-tions, it very easily bars the actions, as in the case of the E-1 project linking Greater Jerusalem to the town of Ma’aleh Adumim, virtually bisecting the West Bank, a very high priority for Israeli planners (across the spectrum), but raising some objections in Washington, so that Israel has had to resort to devious measures to chip away at the project.

The pretense of opposition reached the level of farce last February when Obama vetoed a Security Council resolution calling for implementation of official U.S. policy (also adding the uncontroversial observation that the set-tlements themselves are illegal, quite apart from expansion). Since that time there has been little talk about ending settlement expansion, which continues, with studied provocation.

Thus, as Israeli and Palestinian representatives prepared to meet in Jordan in January 2011, Israel announced new construction in Pisgat Ze’ev and Har Homa, West Bank areas that it has declared to be within the greatly expanded area of Jerusalem, annexed, settled, and constructed as Israel’s capital, all in violation of direct Security Council orders. Other moves carry forward the grander design of separating whatever West Bank enclaves will be left to Pal-estinian administration from the cultural, commercial, political center of Pal-estinian life in the former Jerusalem.

It is understandable that Palestinian rights should be marginalized in U.S. pol-icy and discourse. Palestinians have no wealth or power. They offer virtually nothing to U.S. policy concerns; in fact, they have negative value, as a nui-sance that stirs up “the Arab street.”


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Israel, in contrast, is a valuable ally. It is a rich society with a sophisticated, largely militarized high-tech industry. For decades, it has been a highly val-ued military and strategic ally, particularly since 1967, when it performed a great service to the U.S. and its Saudi ally by destroying the Nasserite “virus,” establishing the “special relationship” with Washington in the form that has persisted since. It is also a growing center for U.S. high-tech investment. In fact, high tech and particularly military industries in the two countries are closely linked.

Apart from such elementary considerations of great power politics as these, there are cultural factors that should not be ignored. Christian Zionism in Brit-ain and the U.S. long preceded Jewish Zionism, and has been a significant elite phenomenon with clear policy implications (including the Balfour Dec-laration, which drew from it). When General Allenby conquered Jerusalem during World War I, he was hailed in the American press as Richard the Li-on-Hearted, who had at last won the Crusades and driven the pagans out of the Holy Land.

The next step was for the Chosen People to return to the land promised to them by the Lord. Articulating a common elite view, President Franklin Roosevelt’s Secretary of the Interior Harold Ickes described Jewish colonization of Pales-tine as an achievement “without comparison in the history of the human race.” Such attitudes find their place easily within the Providentialist doctrines that have been a strong element in popular and elite culture since the country’s origins: the belief that God has a plan for the world and the U.S. is carrying it forward under divine guidance, as articulated by a long list of leading figures.

Moreover, evangelical Christianity is a major popular force in the U.S. Further toward the extremes, End Times evangelical Christianity also has enormous popular outreach, invigorated by the establishment of Israel in 1948, revital-ized even more by the conquest of the rest of Palestine in 1967—all signs that End Times and the Second Coming are approaching.

These forces have become particularly significant since the Reagan years, as the Republicans have abandoned the pretense of being a political party in the traditional sense, while devoting themselves in virtual lockstep uniformity to servicing a tiny percentage of the super-rich and the corporate sector. Howev-er, the small constituency that is primarily served by the reconstructed party cannot provide votes, so they have to turn elsewhere.

The only choice is to mobilize tendencies that have always been present, though rarely as an organized political force: primarily nativists trembling in fear and hatred, and religious elements that are extremists by international standards but not in the U.S. One outcome is reverence for alleged Biblical prophecies, hence not only support for Israel and its conquests and expansion, but passionate love for Israel, another core part of the catechism that must be intoned by Republican candidates—with Democrats, again, not too far behind.

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These factors aside, it should not be forgotten that the “Anglosphere”—Brit-ain and its offshoots—consists of settler-colonial societies, which rose on the ashes of indigenous populations, suppressed or virtually exterminated. Past practices must have been basically correct, in the U.S. case even ordained by Divine Providence. Accordingly there is often an intuitive sympathy for the children of Israel when they follow a similar course. But primarily, geostrate-gic and economic interests prevail, and policy is not graven in stone.

The Iranian “threat” and the cuclear issue

Let us turn finally to the third of the leading issues addressed in the establish-ment journals cited earlier, the “threat of Iran.” Among elites and the political class this is generally taken to be the primary threat to world order—though not among populations. In Europe, polls show that Israel is regarded as the leading threat to peace. In the MENA countries, that status is shared with the U.S., to the extent that in Egypt, on the eve of the Tahrir Square uprising, 80% felt that the region would be more secure if Iran had nuclear weapons. The same polls found that only 10% regard Iran as a threat—unlike the ruling dictators, who have their own concerns.

In the United States, before the massive propaganda campaigns of the past few years, a majority of the population agreed with most of the world that, as a signatory of the Non-Proliferation Treaty, Iran has a right to carry out uranium enrichment. And even today, a large majority favors peaceful means for deal-ing with Iran. There is even strong opposition to military engagement if Iran and Israel are at war. Only a quarter regard Iran as an important concern for the U.S. altogether. But it is not unusual for there to be a gap, often a chasm, dividing public opinion and policy.

Why exactly is Iran regarded as such a colossal threat? The question is rarely discussed, but it is not hard to find a serious answer—though not, as usual, in the fevered pronouncements. The most authoritative answer is provided by the Pentagon and the intelligence services in their regular reports to Congress on global security. They report that Iran does not pose a military threat. Its mil-itary spending is very low even by the standards of the region, minuscule of course in comparison with the U.S.

Iran has little capacity to deploy force. Its strategic doctrines are defensive, designed to deter invasion long enough for diplomacy to set it. If Iran is de-veloping nuclear weapons capability, they report, that would be part of its de-terrence strategy. No serious analyst believes that the ruling clerics are eager to see their country and possessions vaporized, the immediate consequence of their coming even close to initiating a nuclear war. And it is hardly necessary to spell out the reasons why any Iranian leadership would be concerned with deterrence, under existing circumstances.


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The regime is doubtless a serious threat to much of its own population—and regrettably, is hardly unique on that score. But the primary threat to the U.S. and Israel is that Iran might deter their free exercise of violence. A further threat is that the Iranians clearly seek to extend their influence to neighboring Iraq and Afghanistan, and beyond as well. Those “illegitimate” acts are called “destabilizing” (or worse). In contrast, forceful imposition of U.S. influence halfway around the world contributes to “stability” and order, in accord with traditional doctrine aboutwho owns the world.

It makes very good sense to try to prevent Iran from joining the nuclear weap-ons states, including the three that have refused to sign the Non-Proliferation Treaty—Israel, India, and Pakistan, all of which have been assisted in devel-oping nuclear weapons by the U.S., and are still being assisted by them. It is not impossible to approach that goal by peaceful diplomatic means. One approach, which enjoys overwhelming international support, is to undertake meaningful steps toward establishing a nuclear weapons-free zone in the Mid-dle East, including Iran and Israel (and applying as well to U.S. forces de-ployed there), better still extending to South Asia.

Support for such efforts is so strong that the Obama administration has been compelled to formally agree, but with reservations: crucially, that Israel’s nuclear program must not be placed under the auspices of the International Atomic Energy Association, and that no state (meaning the U.S.) should be re-quired to release information about “Israeli nuclear facilities and activities, in-cluding information pertaining to previous nuclear transfers to Israel.” Obama also accepts Israel’s position that any such proposal must be conditional on a comprehensive peace settlement, which the U.S. and Israel can continue to delay indefinitely.

This survey comes nowhere near being exhaustive, needless to say. Among major topics not addressed is the shift of U.S. military policy towards the Asia-Pacific region, with new additions to the huge military base system un-derway right now, in Jeju Island off South Korea and Northwest Australia, all elements of the policy of “containment of China.” Closely related is the issue of U.S. bases in Okinawa, bitterly opposed by the population for many years, and a continual crisis in U.S.-Tokyo-Okinawa relations.

Revealing how little fundamental assumptions have changed, U.S. strategic analysts describe the result of China’s military programs as a “classic ‘security dilemma,’ whereby military programs and national strategies deemed defen-sive by their planners are viewed as threatening by the other side,” writes Paul Godwin of the Foreign Policy Research Institute. The security dilemma arises over control of the seas off China’s coasts. The U.S. regards its policies of controlling these waters as “defensive,” while China regards them as threaten-ing; correspondingly, China regards its actions in nearby areas as “defensive” while the U.S. regards them as threatening. No such debate is even imaginable

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concerning U.S. coastal waters. This “classic security dilemma” makes sense, again, on the assumption that the U.S. has a right to control most of the world, and that U.S. security requires something approaching absolute global control.

While the principles of imperial domination have undergone little change, the capacity to implement them has markedly declined as power has become more broadly distributed in a diversifying world. Consequences are many. It is, however, very important to bear in mind that—unfortunately—none lifts the two dark clouds that hover over all consideration of global order: nuclear war and environmental catastrophe, both literally threatening the decent sur-vival of the species.

Quite the contrary. Both threats are ominous, and increasing.


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AUDIOVISUAL MEDIA:INDISPENSABLE REGULATIONSSantiago Druetta

The neoliberal model has colonized economic, political, and academic thought and practice. Having arrived at a new historical moment, we believe that in order to confront the problems and challenges inherited from the neoliberal model, it is

necessary to begin dismantling a vision of the world etched in stone and amplified ad nauseam by that viewing and interpreting machine we call the television.

Social life has tended to be “naturalized” as a negotiation, as an exchange between individuals who are basically equal, as a competition between peers driven by the desire to maximize benefits that are always expressed (or ex-pressible) in monetary terms. This vision has been objectified both in legisla-tion and in our aptitude for perceiving and interpreting reality and, thus, in the way we act upon it.

One cannot deny that the cultural industries1 operate much like marketing campaigns. They are assumed to be like any other industry, and their “de-regulation” and thorough “commercialization” have been perceived as the most logical paths to take. For example, we recall that up until 2 years ago, non-profit organizations were banned from obtaining radio and television li-censes under Argentinian law.

And if in the sphere of general economic activity we discovered that neo-liberal policies systematically lead to economic concentration and exclusion, these processes are even more pronounced in the cultural industries and have a larger effect on culture (if we understand “culture” as the key to interpretation and action that unites or separates groups, depending on how homogeneous they are).

Today, the challenge of transforming economic structures is central to many South American governments and social movements. Even more urgent is the transformation of the radio, television, and cultural industries in general, which have the unique characteristic of simultaneously pertaining to the fields of business and culture and, therefore, to socialization.

In keeping with the idea that these industries have property rights, we can say that they transform social discourse—that is, raw material composed of lan-guage, beliefs, traditions, and general knowledge—into a manufactured com-modity. This raw material is appropriated as if no one had produced it and as

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if it were virgin territory. But it is beyond the scope of this paper to explain the complexity that cultural industries assume in their double role as producers of goods and as producers of “worldviews” (that are always biased), which makes these industries powerful “weapons” for power struggles in almost all aspects of social life.

Among these cultural industries, the audiovisual industry in general, and the radio and television industries specifically,2 have easily managed to amass the largest audience. Moreover, they assure a growing predominance in our lives due to their connection with the new information and telecommunications technologies.

All this justifies undertaking, despite the difficulties, a quick review of audio-visual media origins and development, including the most common analyses to which they have been subjected and the challenges that they have raised, starting with relevant technological innovations, changes in their modes of production and distribution, and other important aspects of their development, especially now that Argentina and Venezuela are implementing new laws reg-ulating the audiovisual field. Additionally, Brazil recently passed a law that regulates subscription-based television services, Uruguay has made progress in regulating community media, and Bolivia has incorporated community me-dia through a constitutional reform. Meanwhile, in Ecuador, the Broadcasting Law is arousing heated debate.

Without careful thought, we run the risk of legislating a type of broadcasting that is on the road to extinction, due to the introduction of new technologies. If we don’t pay attention to the nature of broadcasting, it is easy to fall into the trap of defending the right to “freedom of the press”—an argument that tends to confuse the mythical Enlightenment thinker, who defended liberty by force of pen and ink—if we don’t consider the huge transnational holdings that han-dle business communication on a global scale.

Two Principal Models

Television originated more or less simultaneously in Europe and the United States, although its development differed so greatly in these two regions that today we believe that the television had two contrasting origins, or “models.” The European model consisted of state-managed television intended for the citizenry. It was financed by a special tax, and it assumed the roles of educat-ing, informing, and entertaining, neatly summed up by the concept of public television. On the other hand, the American model was created and managed by private capital, destined for the consumer, and financed by advertising. Its role was almost exclusively to entertain, and it is best expressed by the con-cept of private television. It was the American model that slowly started to become prevalent worldwide.

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In order to understand the difference between these two models, we must re-member that television took off just after World War II in two clearly distin-guishable scenarios. A devastated and hungry Europe could never have sup-plied consumers with sufficient television sets: There was no audience and even fewer consumers who were capable of being seduced by the few ad-vertising agencies that were and continue to be the financial basis of private television. In Europe, TV as a business was not feasible. In contrast, the U.S. economy, strengthened during the war, guaranteed that the mass of consum-ers could purchase both television sets and the products that a reinvigorated advertising industry would broadcast on the home screen. This also partly explains why the U.S. had a business culture willing to advance the neces-sary capital for the costly production of daily broadcasting. And we cannot forget that the U.S. had also developed a huge film industry, which, although it initially viewed the television as a competitor, soon discovered the mutual convenience of a happy marriage.

However, the distinction between the two models can hardly be restricted to economic variables. The problems that European countries faced, such as the pressure to restore and redefine alliances and self-identity, can surely explain the political and cultural interest that nation-states in this region took in tele-vision as a helpful tool. However, we should not exaggerate the importance of post-war conditions, because the the development of the European television model paralleled that of the radio in Europe (except in Spain).

Meanwhile, the private sector took the lead from the beginning of the devel-opment of the American radio industry.3 Starting in the 1920s, we find names like Westinghouse, AT&T, General Electric, and the United Fruit Company in the American radio business, the same names that would appear later in the world of television.

These two administrative models assumed different forms of financing, devel-opment policies, and, at least in principle, conceptual models for determining content. This distinction often justified the confusing and the perhaps not so innocent simplification that reduced the debate to terms of “regulation-dereg-ulation,” or what is considered its equivalent: “control” and “state monopoly” versus the “free market.”

In any event, the basic point of contention revolves around whether the pro-duction and distribution of audiovisual products in particular, and of their symbolic material in general, should be treated as merchandise or as a public service. Even if we understand these material and symbolic products as mer-chandise, we must recognize that they contain certain elements that cannot be left to the “invisible hand” of the market—assuming that this hand exists and works efficiently in other commercial spheres.

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State Regulation

The need for the regulation of the radio and television industries proves in-dispensable due to their “natural” tendency towards oligopoly. Like the film and music industries, they involve large and risky investments during the pro-cess of developing expensive prototypes, after which copies are marketed at a production cost of almost zero. This means that each new copy represents a recovery of the cost of creating the original prototype, and is irrelevant in terms of investment cost. In the audiovisual field, especially in television, the additional marginal cost for each new consumer is practically zero.

Because of this, even in the “free market mecca,” legislation was and is inflex-ible. Under U.S. Federal Communications Commission (FCC) regulations, it was strictly forbidden for all three television networks to own more than seven stations each. This restriction was recently extended to 12 in 1986 and then modified in 1996 when the system was consolidated. While there is not an ex-act numerical limitation today, the FCC prevents any network from possessing over 35% of existing stations.

This limitation led the networks to locate their broadcast stations in large cities and to seek affiliation contracts with independent television stations scattered throughout the rest of the country. They negotiated with the independents, providing them with programming and including them in the management of large national advertising campaigns.

Although TV broadcasting monopolies were avoided, production monopolies by the main networks remained a problem. Therefore, legislation was passed to prohibit affiliated stations from transmitting more than three hours of pro-gramming provided by the parent network at peak broadcasting hours, which avoided a concentration in production and invited an inrush of new players. The Spanish communications expert, Enrique Bustamante, explains that “the syndication market was formed by independent agencies and producers (above all, film giants) that sold their programming to non-affiliated, independent broadcasters. Independent programming also increased among the approxi-mately 200 stations traditionally affiliated with the networks” (Bustamante, 1999, p. 81).

The United States, the champion of the free market, regulated the industry not only to reduce oligarchic concentration of television production and distribu-tion, but also to protect the main broadcasting networks. When new networks sprang up, obstacles were put in place so that the three initial giants would maintain their dominance, which they did for a period of almost 40 years, until the Fox network arrived on the scene in the late 1990s.

Surely this balance between state regulation and the free market can help ex-plain the American model’s efficiency, although this idea is always risky to

Audiovisual media: indispensable regulations | Santiago Druetta

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assert given that market principles, which have crept into most areas of social life, have unduly prioritized benefits for big business as the only valid assess-ment tool.

Although it could be argued that state administration of material production has been reliably inconvenient, we still need to consider the issue of cultural production, sensitive to the influence of socialization processes and knowledge acquisition; that is to say, sensitive to enormous political power. Nevertheless, it would be unfair to deny the real advantages derived from a quantitatively larger production capacity, such as that achieved by the American television industry, which allowed for the extension of broadcasting hours and a thematic diversification of content. These same factors that strengthened the American audiovisual industry handicapped the development of the European industry.

Thus, the American model was imposed on Europe, and the resulting par-adigm shift was abrupt. Italy marks one extreme: In the mid-1970s, Italy pioneered a rapid process of broadcasting privatization and concentration. Perhaps England best marks the other pole: Although private television had already been authorized there by 1955, the public BBC was maintained in re-spectful and well-regulated competition with the private sector, only entering into a period of transition at the end of the 1980s, when certain channels were auctioned off in 1991. Meanwhile, in France, genuine deregulation took off in 1984, although it had existed previously. In Germany, private television has been transmitted by cable and satellite since 1982, and by hertzian waves since 1987. In Spain, private channels were available at the very end of the 1980s. The process in the rest of Western Europe was similar.

Latin America

In Latin America, the television’s development model was similar to that of our radio, which was already demonstrating its commercial nature between the 1920s and 1930s. On this continent, the radio was generally developed on the foundation of advertising, and was concentrated among a few groups—ei-ther of individuals or economically and politically powerful families—under a pioneering American influence. By 1945, this influence was expressed in the creation of the Inter-American Association of Broadcasters (IAAB), one of the main promoters of this model.

Latin America incorporated television very early on, with a speed more char-acteristic of the developed world and a dependency characteristic of the pe-riphery. It would be inappropriate to attempt to thoroughly describe all the entrepreneurial television experiments with their unique characteristics. We will summarize by saying that they closely resembled the foundational model and exhibited an increasingly close relationship with American television, as well as with the United States’ complementary cultural industries.4

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Hollywood was quick to splash its products all over the small Latin American screen, and despite the fact that in most of our countries, as in Europe and the U.S., foreign investment in television was restricted, the standard was easily circumvented early on. The American networks landed in our countries under the legal concept of content producers and commercial agents. In reality, these networks were partners or direct owners of most of the channels on the con-tinent. Goar Mestre, the lord of Cuban television—who later fled the country after the revolution—made himself into a kind of continental manager for the Time-Life Group and became one of the major promoters of television in Ven-ezuela, Peru, and Argentina. This same group was involved in a large scandal in the U.S. and Brazil involving its illegal connections with the company O Globo (although in this industry, everything seems to resolve itself quickly). ABC bought television shares in 15 countries and CBS competed at the same level in this region.

Mexico was the first Latin American country to broadcast television in 1950, and the sixth country in the world to do so. That same year, Brazil and Cuba broadcasted for the first time. Argentina did so in 1951, and in 1953, Venezu-ela became the 11th country to broadcast television. By 1960, television had reached almost all of Latin America, with the exception of Belize, Paraguay, Bolivia, and some island nations in the Caribbean. The four pioneers would become “the kings of the continent,” a position they hold to this day, and would even achieve a significant international presence.

However, our region’s underdeveloped and dependent character, evident throughout our industrial history, hindered the progress of our audiovisual industry. This applies equally to our production, broadcasting, and reception infrastructure, as well as to broadcast content.

False Dichotomies

According to Octavio Gettino, the nature of the Latin American audiovisual infrastructure is incompatible with regulation, given that it depends on smug-gled electronic goods and free trade zones. Meanwhile, legislation was always slow to be implemented, controlling the conditions imposed by the market.

Thus, certain states renounced legislation that set norms and systems (one of the main forms of regulation) in order to develop their national audiovisual in-frastructure.5 The interests of economic and extra-national sectors were placed before any consideration of public interest. The result, in terms of technical infrastructure, was an anarchic overlap of quality and prices on a foundation of improvised legislation and markets dominated by large multinational firms. This, of course, would hinder the development of national industries, widen-ing the gap between these and the big international actors.


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Second, but no less important, local production depended heavily on imported content (programs) and foreign capital.6 This situation can be explained by the feeble official attempts to produce educational and cultural content, which were rarely sustained with conviction, and which only rarely obtained the pub-lic’s approval.

Independent attempts to develop local production increased and were more or less successful. However, as had happened in Europe, television became strongly market-oriented and tended to be produced purely for faddish enter-tainment. Thus, to the detriment of other possible approaches to television production—which began to slowly emerge on our continent, for example in Mexico—the manufacture of content (as well as the purchase of television stations) aimed to increase viewership without regard to cost. The result could not have been any other than the predominance of entertainment television, with a touch of informational content.

However, we should not exaggerate the dichotomy of public television intend-ed for citizens, with its mission of educating, informing, and entertaining, and private television, limited to entertaining the consumer. These two models tend to be posed as a dichotomy between the cultural and the mundane, but we must carefully examine this supposed duality.

Furthermore, the concepts of “culture” and “cultural” require problemati-zation, given that most of the public barely tolerate “cultural” productions, which were—and are—attempts to generalize elitist expression, or even out-right patronization and the dismissal of non-hegemonic practice.7

As for the idea of the omission of the citizen from the receiving end of televi-sion, one should wonder whether the citizen is omitted, or a model of the en-lightened citizen, the architect of and participant in public opinion, conceived of in terms of rationality, autonomy, and emancipation. Actually, the citizenry was never absent from broadcasting, and less so in Latin America, whose history is particularly rich in struggles and alliances among economic powers, national governments, locals and foreigners, and businessmen and leaders, all vying to use the media to increase their economic wealth, social recognition, and the securing of votes.

It is in reference to the citizenry, and not to anything else, that the private sector’s financial management and the government’s political control char-acterized the regulation of the television industry. Meanwhile, political and economic “conflicts of interest” in Latin American television—the common currency of the cultural industry—have often reached the same levels of scan-dal as market crises and coups d’état.

In any event, it is possible that the simultaneous birth of television, the demise of the pact between the state and the working classes (contemptuously called

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“populists”), the progressive weakening of the welfare state, and the rise of neoliberal developments in new information and communications technolo-gies have all helped strengthen the fantasy of certain cultural industries di-rected purely and exclusively by and for the market. But if we believe that this fantasy does not take into account the citizen, then we are overlooking the political aspect of the situation, which, in itself, is the product of a de-termined coalition of forces operating in the social sphere. That is to say, it’s pure politics.

The State of Lilliput

According to Valerio Fuenzalida, Latin American television has been dom-inated by advertising-based funding. Even the university-based television in Chile falls into this category, despite explicit bans. This means that televi-sion is extremely dependent on major advertisers and transnational advertis-ing agencies, which were the only companies with sufficient capital or with the necessary understanding of the market to make such huge investments. Nor was television conceived as a public service, and therefore it lacked policies such as those that regulated other social services, like healthcare and education.

Even in countries where the television was born by governmental initiative, such as Argentina, Bolivia, Venezuela, Colombia, Peru, the Dominican Re-public, and Uruguay, there was no resistance to private enterprises or to those run by transnational capital. Thus, whether public or private in origin, South American television continues to mirror the American model, exhibiting a similar style of programming and fostering similar public preferences.

In the end, national governments’ participation was basically limited to a few channels or networks, usually of little relevance,8 and to the administration of frequencies, a task that developed in a discretionary manner, ensuring the political commitment of licensees. All this was done in return for certain eco-nomic freedom that permitted deals which could be considered illegitimate. Unbelievable stories about the relationship between our continent’s govern-ments and the media can be found in almost any bibliography on the topic.9

In the 1970s, we witnessed the withdrawal of foreign capital and the national-ization of television and radio broadcasting in various countries such as Peru, Venezuela, and Argentina. Unfortunately, these attempts were not lasting. How-ever, neither were other various transformations of the 1980s, such as the Mex-ican PRI’s shift to the right and the bloody dictatorships of the Southern Cone. We must mention that the eventual involvement of the public sector in the au-diovisual industry led to government radio and television rather than media run by the public. The executive powers of each country—not the representatives of social diversity—managed and controlled these outlets, however minimally.The nationalization attempts of the 1970s coincided with the “third world’s”


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demands within Unesco that asymmetries be reduced in global flows of com-munication. Their report corroborated the need for a new system of global communication, and subsequently incited retaliation by the U.S., whose pre-tense of democracy defended the right to “freedom of information,” which ac-tually meant absolute economic liberty to expand powerful cultural industries. The Unesco attempt failed, not only against U.S. retaliation, but against new trends in the information and communications markets as well.

The new technological trends and the rebirth of an even more severe form of liberalism combined to transform the international scene, especially for tele-vision: “The 1980s witnessed the defeat of the concept of national communi-cation policies and proposals and the defeat of those who had fought strong-ly in managerial organizations such as SIP or IAAB” (Mastrini & Becerra, 2003). Today, these same organizations believe that current Argentinean and Venezuelan laws, and Ecuador’s impending law, are more threatening to the freedom of the press than the recent assassinations of journalists in Honduras.

A New Era for the Cultural Industry

A review of the 1980s shows us that a preparatory stage for an economic boom in the information and communications industries began in Latin American as well, affecting the technological and economic sectors as much as the con-ceptual order in the region. The digitalization of information, developments in telecommunication satellites and the Internet, global concentration and in-ternationalization of capital, and accelerated cultural assimilation were the building blocks that made cultural industries a prized target of international financial capital.

After a few decades of the withdrawal of U.S. television networks from our continent, investments from the north returned. However, these investments were not only limited to television networks: They also included various multi-million dollar investments. According to Denis de Moraes, at the end of the twentieth century and the beginning of the twenty-first, media conglomer-ates were positioned among the 330 largest non-financial corporations in the world, and had the highest growth rate in the U.S. economy: In the first 5 years of this century, media corporations exceeded a 7% growth rate, compared to 6.4% for the financial sector, 5.6% for the service sector, and 3.8% for durable goods. Octavio Getino (2008) notes that “according to Unesco, the figures in the cultural industries sector for 2000 indicate that this was one of the largest growth rates worldwide, and it estimated that cultural industries sales had reached $831 billion in that period.”

In the Latin American audiovisual field, names like George Soros, HMT&F, Goldman Sachs, Citicorp, Chase Manhattan Bank, Texas Pacific Group, and, of course, Murdock, Sony, MGM, Viacom, Liberty Media, and Time Warner, to mention a few, are becoming common. But this time, the arriving capital is

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encountering local groups that are more or less established and, moreover, that are extremely familiar with national markets, which they prioritize when form-ing alliances and partnerships. Emblematic cases include Mexico’s Televisa, Brazil’s O Globo, Venezuela’s Venevision, and Argentina’s Grupo Clarín.

Recognizing What Is at Stake

At the end of the twentieth century, 10 mega-corporations controlled the press, radio, audiovisual media, and the entertainment industry, covering almost the entire globe and mobilizing incredible amounts of economic and political cap-ital. It is these corporations that are playing both ends of the social reproduc-tion process: They circulate and increase material wealth while determining the meanings that are constructed in the disputes over determining what is “truth” within the social world. Their incomparable symbolic power makes these economic-discursive “battleships” privileged collective agents that, in their daily work, seek to define what is possible and impossible, what is ex-pressible and what is inexpressible, what is true and what is false. These cor-porations impose “strategies,” formed from their positioning in the business world and the positioning of their professional spokespersons in the broad-casting industry.

All of this certainly influences how humanity socializes (the way we enter into and maintain this universe of shared assumptions called “culture”) and, therefore, our ways of assuming cultural possibilities and impossibilities, and our everyday strategies of adaptation and resistance. Latin American social movements and governments challenge these corporations and their devoted representatives, such as SIP and IAAB, in the struggle for their regulation.

It would be laughable—if not frightening—for these political, economic, and financial conglomerates to wield “freedom of the press,” a term used to ar-gue against regulation: It is precisely in the interest of defending the right to freedom of the press (understood as equitable conditions for accessing and disseminating discourse) that social movements attempt to impose limits on the concentration of commercially-oriented media outlets.

Nation-states should manage social communication just as they do healthcare and education: These industries must be carefully regulated to guarantee equi-table access and to enforce the right to articulate and circulate discourse from all sectors. Democracy is condemned to be empty discourse or, even worse, a discursive trap, if we don’t regulate the communication industries to avoid profound imbalances.


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Footnotes

1. We understand “cultural industry” as “a set of branches, segments, and auxiliary industrial activities that produce and distribute merchandise with symbolic content, conceptualized by creativity, organized by appreciating capital, and destined for con-sumer markets, with the goal of contributing to ideological and social reproduction” (Zallo, 1988, p. 9).2. Even though television is usually conceived of as a medium similar to film due to its audiovisual base, in terms of the nature of its production, circulation, and consump-tion, it has a closer affinity with the radio, because these belong to the broadcasting industry. Because radio broadcasting is generally studied in more depth, we prioritize television broadcasting in this article. Film and video, on the other hand, are cate-gorized within the publishing industry, comparable to that of the book. For further reading on this topic, see Bustamante, 1999. 3. Even though the U.S. Navy was the pioneer of the radio, it was more oriented towards point-to-point communication (radiotelephony), while the development of point-to-multipoint communication (radio broadcasting) was encouraged in great part by radio set manufacturers.4. Regarding complementary industries, I refer specifically to film and advertising. The U.S. film industry encountered an excellent venue for the exhibition of old prod-ucts and reruns on the small Latin American screen. Meanwhile, U.S. advertising, extending itself throughout the continent, was a direct producer for content on our television. For a detailed study of advertising development, see Mattelart, 2000.5. The establishment of a standard or system determines all infrastructure, both pro-ductive and receptive (domestic appliances), which involves huge interests. A notable example is the recent economic and even diplomatic pressure applied by the U.S., Europe, and Japan on all the Americas to impose the digital television standards of its respective national industries.6. Even though our continent produced soap operas from an early stage, we did not consolidate important television production until much later on, finally reducing the importation of content and gaining overseas markets. Two examples of this change in television production are Mexico’s Televisa and Brazil’s O Globo.7. The case of Colombia is emblematic in this sense. The television was born and de-veloped in this country under the control of a government that leased slots to private producers under the premise of promoting culture, which was long considered the broadcasting of classical art (Rey, 2002).8. Mexico is an exception to the rule: This country formed an important public net-work and cultural channel (22) that was a pioneer on our continent and a model for other countries. Argentina, another exception, created Canal Encuentro a few years ago, funded by the Ministry of Education, which can also be considered a model for cultural television on our continent.9. “...The relationship between governments and large media outlets was character-ized by the incapacity of governments to establish policies controlling the owners of the media, in exchange for political control over content” (Mastrini & Becerra, 2003).

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References

Bustamante, F. (1999). La televisión económica. Barcelona: Gedisa.Getino, O. (2008, summer). Cultura, economía e industrias culturales. Transatlántico 3. Retrieved September 16, 2009 from http://www.ccpe.org.ar/transatlantico/03/cultu-ra-economia-e-industrias-culturales.htmMastrini, G. & Becerra, M. (2003, August). 50 años de concentración de medios en América Latina: del patriarcado artesanal a la valorización en escala. Sala de Pren-sa 58. Retrieved May 12, 2007 from http://www.communicationforsocialchange.org/body-of-knowledge.php?id=2964Mattelart, A. (2000). La Publicidad. Barcelona: Paidos.Rey, G. (2002). La televisión en Colombia. In Orozco Gómez (Ed.), Historias de la televisión en América Latina. Barcelona: Editorial Gedisa.Zallo, R. (1988). Economía de la comunicación y la cultura. Madrid: Akal.




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RIO+20 CONFERENCE: ECUADOR’S INNOVATIVE PROPOSALSMaría Fernanda Espinosa and Helga Serrano Narváez

In order to understand the importance of the United Nations Conference on Sustainable Development (also known as “Rio+20” and the “Earth Summit”), one must remember that on our enormously wealthy planet—which can easily feed 12 billion people (Ziegler, 2011, p. 13)—a child under the age of 10 dies of hunger every 5 seconds. Far from being a case of misfortune, these casu-alties are evidence of the failure of the world’s distribution model, something we must consider if we are to renew our commitment to bringing about global social and environmental justice.

The Rio+20 Conference, which will take place in Rio de Janeiro, Brazil, from June 20-22, 2012, marks the 20th anniversary of the United Nations Con-ference on Environment and Development that was held in Rio de Janeiro in 1992, and the 10th anniversary of the World Summit on Sustainable De-velopment, held in Johannesburg in 2002. Rio+20 will be a prominent event in which heads of state and government participate, as well as many social organizations and civil society representatives. The goal of this meeting is to produce a political declaration and plan of action.

The objectives of the conference include the renewal of political commit-ment to sustainable development, the assessment of progress made and any existing gaps in the implementation of the objectives outlined at the main summits on sustainable development, and the consideration of new issues and emerging challenges.

Developing countries believe it is necessary to evaluate the progress made during the past 20 years in order to determine why commitments have not been fulfilled, to correct errors, to identify responsibilities, and to reaffirm agreements. However, developed countries prefer to avoid this discussion and propose looking towards the future, while overlooking the importance of assessing the current models of production, distribution, and consumption. This is why the two main topics to be discussed at Rio+20—topics which a number of countries consider to be imposed upon them rather than reached by consensus—are the green economy as it corresponds to sustainable de-velopment and poverty eradication, and the institutional framework for sus-tainable development.

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Within this context, Ecuador believes that Rio+20 must not become a con-ference on the green economy. Rather, it should be an opportunity to reaffirm the importance of sustainable development from an economic, social, and environmental perspective. This conference is also an opportunity to share and evaluate the progress made in creating alternative methods for gathering innovative proposals and experiences from around the world, especially Latin America and the Caribbean. As the conference is based on inclusive partici-pation, it will have to include proposals from indigenous nationalities, youth, the elderly, and women from rural and urban areas.

No renegotiation or redefinition of the instruments, principles, or agreements from the previous summits should be permitted, as these processes general-ly involve easing or eliminating commitments, responsibilities, and acquired rights. Therefore, it is essential to maintain firm principles (particularly equal-ity), as well as the concept of common but differentiated responsibilities.

Global Commitments1

The 1992 Rio Declaration on Environment and Development begins by rec-ognizing that “human beings are at the centre of concerns for sustainable de-velopment” (Principle 1), and continues by affirming “the sovereign right [of states] to exploit their own resources ... and the responsibility to ensure that activities within their jurisdiction or control do not cause damage to the envi-ronment of other States or of other areas beyond the limits of national juris-diction” (Principle 2). The declaration also defines common but differentiated responsibilities regarding environmental degradation.

The declaration is an invitation to modify consumption patterns, promotes a global economic system that allows for economic growth and sustainable development while confronting environmental problems, and promotes in-formed participation and the development of scientific and technological ad-vances and knowledge in order to improve current environmental conditions.

The declaration also affirms the need for precautionary measures and the in-ternalization of environmental costs (or the “polluter pays principle”), recog-nizes the important role that women, young people, and indigenous peoples and communities play in implementing development, and emphasizes that “peace, development and environmental protection are interdependent and in-divisible” (United Nations, 1992, Principle 25).

As a result of this summit and the subsequent action plan, Agenda 21, which outlined all aspects of international treaties on sustainable development, many countries, including Ecuador, agreed to endorse three international conven-tions: the United Nations Framework Convention on Climate Change (1993), the Convention on Biological Diversity (1993), and the Convention to Combat Desertification (1995), all focusing on critical global environmental issues.

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Sustainable Development: Advances and Limitations

The concept of sustainable development became widespread after the United Nations Conference on the Human Environment, held in Stockholm in 1972. The term acquired global relevance in the report on “Our Common Future” (also known as the Brundtland report), published in 1987 in preparation for the U.N. Conference on Environment and Development (Rio de Janeiro, 1992). Broadly speaking, sustainable development means satisfying present needs without endangering future generations’ ability to do the same.

The concept of sustainable development emerged when it was discovered that humanity would destroy the complex balance of life on the planet if we main-tained current levels of production and consumption. It became apparent that climate change, depletion of the ozone layer, pollution, and the destruction of ecosystems, forests, and biodiversity were incontrovertible signs of global environmental problems, and an indication that we needed to create a social contract that recognized and confronted the finite limits of the earth.

We must also mention that the idea of “carrying capacity” associated with sustainable development has not only omitted or partially incorporated key features of social processes (radically different from the reproductive cycles of animal and plant species), but has also erroneously contributed to the per-ception that we can overcome current problems by applying purely biological solutions—an idea that neglects the true causes of social disparities and envi-ronmental degradation (Martínez Alier, 1994).

If we continue to believe that it is possible to continue at the current rate of economic growth and simultaneously ensure the conservation of the environ-ment, the changes required to preserve life’s support systems will become even more difficult to implement than those required during the past 20 years. It is remarkable how few global commitments are met. Developed countries, for example, have yet to implement measures to reduce greenhouse gas emissions.

In terms of biodiversity conservation, the agreements made during the last 20 years have not been respected either, due to the continuation of a development model that supports high consumption patterns and unfavorable terms of trade for countries that export primary goods.

Meanwhile, there has been a deficit in terms of cooperation: Not enough fi-nancial resources have been allocated for supporting sustainable development, a problem that represents major limitations in poor countries. Official aid for sustainable development is declining, while global military expenditure reached 1.6 trillion dollars in 2010 (“Background paper,” 2011). It is significant that the global South continues to transfer massive amounts of resources to the global North: The flight of capital from the South equaled $869 billion in 2007, while Latin America’s share amounted to $99.8 billion (United Nations, 2008).

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Rio+20 conference: Ecuador’s innovative proposals | María Fernanda Espinosa and Helga Serrano Narváez

Processes to empower developing countries have been equally limited, such as attempts at knowledge transfer and exchange, access to common and public goods, the subsequent revision of intellectual property rights, and the effective transfer of safe and innovative technologies. All of these are crucial in order to guarantee human rights, the rights of nature, and to prevent climate change.

Ecuador, 20 Years Later

The two decades following the Earth Summit have seen a series of transforma-tions in Ecuador. Some of the most notable advances can be seen in the coun-try’s legal and institutional frameworks. The Constitution of 1998 defined and regulated environmental issues, defined the collective rights of indigenous peoples and nationalities, and emphasized the social, economic, and cultural rights of the Ecuadorian population. However, it also guaranteed the primacy of a development model that privileged the interests of capital and of small, privileged power sectors.

The new Constitution, approved in 2008, calls for an inclusive society, deep-ens fundamental and collective rights, introduces the rights of nature for the first time in history, strengthens a democratic and participatory system, pro-motes Buen Vivir (Good Living) as a development paradigm, emphasizes so-cial justice, and declares Ecuador an intercultural and plurinational State. The profound changes put forth in the Constitution require the reconfiguration of Ecuador’s laws and norms through the implementation of a legal and institu-tional framework in line with the concept of Good Living.

During the first 5 years of this century, Ecuador experienced institutional dis-agreement, fragmentation, lack of planning, exaggerated centralism that did not contribute to the increased integration of marginalized territories, and a limited capacity to respond to social demands. The crisis in State legitimacy led to acute political instability with successive governmental shifts. (Eight different presidents ruled during a single decade, from 1996 to 2006.)

In 2007, this situation started to change with the establishment of the Citizens’ Revolution and its political will to reconfigure the State. The current govern-ment is taking the initiative to reformulate the economy, civil society, politics, and culture, and is recovering its role in the planning of the country’s devel-opment agenda. After decades without planning, the current government for-mulated and put into effect the 2007-2010 National Development Plan, which was followed by the National Plan for Good Living, a document that defines the country’s objectives for the 2009-2013 period and the methods to work toward these goals.

The notion of Good Living is based on three pillars, the first of which is the promotion of an inclusive economic model that incorporates “actors that have historically been excluded from the logic of the market” into accumulation

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and redistribution processes. The second pillar is “the transition from current anthropocentrism to bio-pluralism” by modifying the relationship between humans and nature. The third pillar defines the concept of Good Living in terms of equality, social justice, and interculturalism (Senplades, 2009).

The recovery of the State’s central role as guarantor of the common good has enabled a gradual legitimization of the political system and has led to increased stability, observed in the continuation of the democratically elected government. This change has been the product of struggle, resistance, and proposals from various social sectors that have been incorporated into the State’s political agendas.

During the 20 years since the Earth Summit, the country has gone through three distinct phases. The first took place between 1990 and 1996, the period following the foreign debt crisis. It was characterized by relative stability, with governments that were able to complete their terms of office (Rodrigo Borja from 1988 to 1992 and Sixto Durán-Ballén from 1992 to 1996). They promot-ed neoliberal economic and social policies, which increased the concentration of wealth, primarily benefiting the financial sector and other sectors linked to the global market, widening the social gap between the rich and the poor. Under the Washington Consensus’ guidelines, these governments favored fis-cal adjustment, payment of external debt, financial deregulation, labor flexi-bilization, the reduction of the state’s functions through the privatization of strategic public enterprises, and the introduction of private service providers that “liberated” the state from the “burden” of guaranteeing the population’s fundamental rights (Espinosa, 2011).

The second phase took place between 1997 and 2006, when these policies were maintained and expanded. In addition to the state’s continuing divesti-ture of social services and institutional disintegration, these years were char-acterized by an unprecedented economic crisis that led to the dollarization of the Ecuadorian economy at the beginning of the century, in a context of high political and social instability and increased distrust of the political forces controlling the state. Despite the fact that this phase began with a new constitution (1998) that supposedly aimed to counteract political instability, there was an obvious lack of political will to implement long-term respons-es. The government was unable to implement a vision combining environ-mental, social, and economic variables (beyond isolated declarations and actions), nor did it seriously address poverty and inequality, still rampant in Ecuadorian society.

These factors caused a standstill, and even a reversal, in some of the country’s social achievements, to the point that Ecuador had one of the lowest levels of per capita social investment in 2005 ($96), in comparison with other countries in the region (Argentina reached $1,500) (Espinosa, 2011). Fander Falconí and Julio Oleas (2004) notice that during this decade, “the outcome had less to do with development, and more to do with the failure to incite growth.”

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Nonetheless, the severe obstacles faced during this period led to the consolida-tion of political and social organization, including the development of a power-ful indigenous movement, the establishment of environmental protection groups and efforts, the struggle to include the needs of women, children, and youth in political agendas, and the emergence of organizations in favor of equal access to land and water. These social manifestations managed to halt the implementation of orthodox structural adjustment packages and free trade agreements, creating an opening for new social forces to take power.

The third phase, which was established by the government of the Citizen’s Rev-olution (2007) and coincided with the ratification of a new constitution (2008), initiated a period of political, social, and economic stability that allowed the gov-ernment to address repressed social demands. Distinctive characteristics of this phase include the construction of a more inclusive society, sovereign economic management, and the reinforcement of the state’s role as the representative of the common good.

These advances can be attributed to the strategic plan for Good Living, which enables the prioritization of certain projects based on available resources. This planning not only incorporates the commitments made in Rio de Janeiro in 1992 and the subsequent global agendas (Millennium Development Goals, the Johan-nesburg Plan of Implementation), but proposes much more ambitious goals in order to gradually transition from an economy that is highly dependent on nat-ural resource extraction, toward a service-based economy based on added value and bio-knowledge (Senplades, 2009).

A second contributing factor to these advances is the return of the state and the strengthening of public institutions. The government has achieved higher levels of inter-institutional articulation and coordination due to the role played by the Ministries of Coordination in the formation and operation of Sectoral Councils, whose objectives include optimizing budget allocation, formulating and imple-menting cross-cutting policies, and carefully assessing progress made on out-lined goals, among other tasks.

What these three phases illustrate is that, during the years immediately following the Earth Summit until the beginning of the twenty-first century, the fulfillment of the country’s commitments depended more on external conditions and on the role of social sectors than on government action. Thus, many of the transforma-tions during that period were financed through accruement of foreign debt and direct payment by the citizenry for access to social services.

In recent years, while international agreements and commitments made by Ecuador are still taken seriously, ambitious constitutional rights and strategic planning that offers an alternative to the country’s extractive model ensure that Ecuador is on the path to implementing Good Living, in the framework of an intercultural and plurinational state, respectful of the rights of nature and deeply committed to the well-being of its people.


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As for regional and multilateral integration, it is still necessary to improve cooperation and coordination regarding sustainable development within the United Nations. Regional development councils have been formed within the Union of South American Nations (Unasur) and the Bolivarian Alliance for the Peoples of Our America (ALBA), centered around social and economic goals. Also, the first Meeting of the Ministers of Environment of the Commu-nity of Latin American and Caribbean States (Celac) was held in early 2012.

Ecuador: Proposals for Rio+20

The agreements reached regarding current critical problems and expressed at various regional meetings (for example, the Declaration of the Ministers of Environment of Mercosur plus Chile, the Declaration of the Ministers of En-vironment of ALBA, the Declaration of the Ministers of Foreign Affairs of the member countries of the Amazon Cooperation Treaty Organization [ACTO] in preparation for Rio+20, and the Quito Declaration formulated during the First Meeting of the Ministers of Environment of Celac) indicate the possibility of developing a common vision to be discussed at the Rio summit, which should be based on four premises: the reactivation of a sustainability agenda that does not backtrack on the principles established in Rio in 1992; the transformation of the development model with new emphasis on redistribution, equality, and inclusion; profound technological transformation; and the formulation of a program with clear goals and expected results for the next 10 years.

Within this framework, we believe that the Rio+20 Conference is an oppor-tunity to uphold an integral vision of sustainable development and to make headway on prioritized issues in our Constitution: Good Living, the rights of nature, and a new financial architecture.

A new paradigm: Good Living

Ecuador has developed the concept of “Good Living” as an alternative to the dominant development model based on infinite economic growth and the over-exploitation of natural resources, creating poverty, inequality, and the exclusion of a large part of the population.

Good Living is the guiding concept of Ecuador’s Constitution; it is the basis for the country’s strategic planning (the National Plan for Good Living) and for the course of action we have set forth to overcome the current extractivist model. It has emerged as a development alternative, and questions the current dominance of a model based on unsustainable production and consumption that does not meet the needs of the current generations and jeopardizes the rights of future generations.

The concept of Good Living implies equilibrium between human rights and the rights of nature. It proposes ending anthropocentrism that has placed

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nature at the service of human beings, converting it into an object for manip-ulation and appropriation.

In order to reaffirm the importance and validity of human rights and the rights of nature, we must reconfigure ethical, political, social, and economic con-cepts. Based on these goals, Ecuador is working towards building a society of bio-knowledge and services, and especially the implementation of sustainable and responsible tourism.

Within this context, the green economy cannot be considered as an alternative to sustainable development. It can only be constructed within a paradigm shift based on the concept of sustainability, which respects the limits of nature. Therefore, it should be regarded as a tool to adjust economic models, devel-opment priorities, political-institutional frameworks of each country, popular and solidarity economies, fair trade, and multiple evaluation criteria for global common and public goods. It requires a new method to measure development, in accordance with indexes that measure well-being, and physical indicators that make connections between the economy and ecology, and that permit assessment of the transition towards Good Living by measuring the environ-mental footprint.

The transition towards Good Living also requires eliminating barriers to the safe transfer of technology to developing countries, as well as obstacles to de-veloping countries’ capacity-building. These transitions require an emphasis on technologies that can be realistically adapted to our national contexts in or-der to reduce environmental impact and to promote sustainable development.

The transition to Good Living implies recognizing the persistence of structur-al problems that the current development model has not been able to reverse, and the infeasibility of maintaining the processes by which we exploit nature. Therefore, we must prioritize intervening in new and unresolved issues, such as:

a) fostering and consolidating food and energy sovereignty;b) changing patterns of production and consumption;c) modifying energy production;d) strengthening popular and solidarity economies, and encouraging small and medium producers;e) implementing national security, disaster response, and risk management from an ecological and human security perspective, and recognizing the vul-nerability of both the population and the ecosystem;f) fostering urban and rural sustainability, including territorial planning and land-use legislation;g) reducing solid and liquid waste, and improving comprehensive sanitation management;h) managing water resources;i) controlling ocean contamination and acidification;


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j) implementing effective actions to protect fragile ecosystems and mountain areas from environmental degradation, desertification, and irreversible biodi-versity loss;k) establishing equitable income distribution, nationally and globally;l) fostering bio-knowledge;m) stimulating equitable and fair trade;n) improving the status of women, young people, children, adolescents, and other underrepresented groups;o) considering the needs of indigenous peoples and nationalities, African de-scendents, montubios, and cholos;p) expanding democracy and conflict-resolution mechanisms.

The rights of nature

Formal recognition of the rights of nature involves respecting Mother Earth’s existence and ability to create and reproduce life. It is necessary to recognize the intrinsic value of nature, as well as the sovereign right of countries to con-serve their natural heritage.

The rights of nature have been incorporated, for the first time in international history, into the Ecuadorian Constitution, and are awarded the same impor-tance as other rights:

Nature, or Pacha Mama, where life is reproduced and occurs, has the right to integral respect for its existence and for the maintenance and regenera-tion of its life cycles, structure, functions and evolutionary processes. All persons, communities, peoples and nations can call upon public authorities to enforce the rights of nature. To enforce and interpret these rights, the principles set forth in the Constitution shall be observed, as appropriate. The State shall give incentives to natural persons and legal entities and to communities to protect nature and to promote respect for all the elements comprising an ecosystem (Constitution of Ecuador, 2008, Article 71).

The First Meeting of the Ministers of Environment of Celac, held in Quito on February 2-3, 2012, welcomed Ecuador’s proposal to discuss the creation of a Universal Declaration of the Rights of Nature within the Rio+20 Conference, as an instrument for achieving Good Living (Celac, February 2-3, 2012). It is also important to continue promoting the formation of an International Cli-mate Justice Tribunal.

New international economic order and new financial architecture

The current international economic order, dominated by the interests of trans-national corporations, has intensified poverty, inequality, and exclusion. These are structural problems that must be addressed at their origins, which is why Ecuador reaffirms the importance of creating a new international economic

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order that guarantees the redistribution of wealth and the transformation of production, consumption, and commercialization patterns. The Celac Meeting of the Ministers of Environment stated that a new economic order must be “fairer, more equitable and inclusive, and ... must overcome the weaknesses, illegitimacy, and limitations of the current development model” (Celac, Feb-ruary 2-3, 2012).

The new order must be based on a system of fair trade and solidarity with developing economies within a new financial architecture. This model should not prioritize the infinite accumulation of goods, but should promote an inclu-sive, sustainable, and democratic economic strategy that respects the limits of nature. The damage inflicted on the earth by the current economic system is no less serious than the harm caused to most human beings when forced to produce under conditions of severe insecurity and the complete disrespect of their rights, when forced to consume useless or harmful items that are de-signed with planned obsolescence, and when subject to the tyranny of interest and profit rates.

It is necessary to discuss and implement actions in order to transform any logic that is contrary to the principles of sustainable development. At the con-ference, we must agree on alternatives that take into account the principles of equity, transparency, sovereignty, equality, interdependence, mutual interest, cooperation, and solidarity among peoples, with the effective participation of developing countries in international decision-making processes.

One of the main objectives of Rio+20 is to agree on a vision and renew the commitment to eradicate poverty and to promote inclusion and social equality. Therefore, this conference presents itself as an excellent opportunity to pre-pare ourselves for a new international economic order.

Ecuador believes that through regional integration, we can control volatile food prices and speculation in the commodity markets, and create practical re-sponses to the ecological crisis. For its part, the global North should promote fair trade, consider compensation for damages and liabilities, and promote equality among nations.

The new international financial architecture and the establishment of regional financial institutions, such as the Bank of the South, will provide resources to support sustainable development activities, and will impede the subjugation of each country’s interests to external pressures.

Within this framework, Ecuador suggests, among various proposals, the is-suance of special drawing rights (SDR) that will permit superseding liquidity restrictions that arise from the effects of the international financial and eco-nomic crises and their impact on development. The use of SDRs will provide the necessary resources to fight hunger and climate change, and to foster


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development in the global South. Financing should also come from the com-mitment by developed countries to set aside 0.7% of GDP for official devel-opment aid, under the principle of common but differentiated responsibilities.

Among innovative financing instruments, Ecuador supports the tax on inter-national financial transactions and has also proposed the Net Avoided Emis-sions mechanism (NAE) and the Daly-Correa tax. The NAE refers to those emissions that could occur within each country’s economy, but are avoided, and represents a new development model that respects biodiversity and stim-ulates the search for new forms of energy production. The implementation of NAE should be financially compensated, given that it attempts to achieve a positive net balance in the reduction of emissions, and complements current efforts to meet the standards set in the Convention on Climate Change and the Kyoto Protocol.

One of the most creative and politically well-received programs that Ecuador has launched is the Yasuní-ITT Initiative, which commits to preserving the Ishpingo-Tambococha-Tiputini oil block in Yasuní National Park, in order to conserve biodiversity, protect indigenous people who live in voluntary iso-lation, promote social development, and combat climate change by avoiding the emissions of greenhouse gasses that would result from exploiting the ap-proximately 846 million barrels of oil that are estimated to be underground. Ecuador is asking the international community to contribute approximately $3.6 billion in compensation for “leaving the oil in the soil” and preventing the emission of approximately 407 million tons of carbon dioxide that would be released upon burning the fossil fuel. This request embraces the principle of co-responsibility, and the amount represents half of what the country would obtain from the exploitation of these deposits (Ministry for the Coordination of Natural and Cultural Heritage, 2010). This money would be earmarked to implement changes in the production of energy, to effectively conserve pro-tected areas, to reforest one million hectares of forest, to increase energy ef-ficiency, to foster social development in the areas protected by the Initiative, and to promote research and the development of technology.

The Daly-Correa tax aims to curb carbon dioxide emissions by funding programs that combat poverty, promote climate change mitigation and adaptation projects, conserve biodiversity, and promote sustainable energy models for developing countries. The program consists of a tax on oil exports to developed countries and is intended to compensate carbon dioxide emissions. The resources gener-ated by this tax would be managed by a global sustainable development fund. The proposal, which has been enacted in Ecuador, “raises the issues of economic justice and the international distribution of the causes and impacts of climate change” by shifting the responsibility for emissions to countries that have higher fuel consumption (Gallardo, Koenig, Christian, & Martínez Alier, 2008).

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Institutions

If we are to confront the multiple crises facing the planet in a comprehensive manner, specific global institutional transformations are required, as well as a binding legal framework. Since 2005, there has been discussion within the United Nations, especially within the Governing Council of the United Na-tions Environment Program (UNEP), revolving around the following options: strengthening the role of Ecosoc, strengthening the Commission on Sustain-able Development and transforming it into the Council for Sustainable De-velopment, and strengthening UNEP and transforming it into a specialized international agency for considering environmental issues.

Additionally, Cuba presented the proposal for a Ministerial Forum of Global Sustainability, aimed at uniting the current UNEP Global Ministerial Envi-ronment Forum with the Ecosoc Commission on Sustainable Development in order to achieve greater coherence, coordination, and rationality in the global institutional framework. This forum would meet annually at the United Na-tions headquarters in New York with the institutional support of the DESA/UNEP Secretariats.

It would be a high level forum in which the ministers of economic, social, and environmental affairs would participate according to the annual agenda and/or the adopted work program. It would be open to the participation of all U.N. member states and would discuss the UNEP Governing Council’s decisions and recommendations. Furthermore, it could propose new international legal instruments for sustainable development to the U.N. General Assembly.

There is no doubt that we need new governance on sustainability that involves ethical alliances, funding mechanisms, and global redistribution in order to strengthen national and international institutional frameworks for sustainable development. We must work towards a legally binding instrument supported by financial resources in accordance with the vision of a new international financial architecture.

Finally, it is necessary to fortify regional coordination mechanisms in order to reinforce complementary actions, to support efforts that promote inclusion and equality, to learn from each other, and to formulate endogenous agendas without external pressure. This is why it is essential to empower new inte-gration organizations such as Unasur, Celac, ALBA, and the Bank of the South by promoting coordinated policies and actions for the advancement of sustainable development.


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Footnotes

1. This section, in which we assess global commitments and sustainable development in Ecuador during the last 20 years, is a synthesis of the document “History and Ad-vances of the Assessment of the Country Facing Rio+20,” prepared in Quito in 2012 by the Inter-Ministerial Committee, composed of the Ministry for the Coordination of Natural and Cultural Heritage, the Ministry of Foreign Affairs, Trade and Integration, the National Secretariat of Planning and Development, and the Ministry of Environ-ment. This section also incorporates elements of a presentation by María Fernanda Espinosa, “Current Progress and Persisting Gaps in the Implementation of Agenda 21 of the United Nations Conference on Environment and Development,” presented at the Regional Preparatory Meeting of Latin America and the Caribbean in September of 2011.

References

Background Paper on SIPRI Military Expenditure. (2011, April 11). Stockholm In-ternational Peace Research Institute. Retrieved March 2012 from http://www.sipri.org/research/armaments/milex/factsheet2010Community of Latin American and Caribbean States. (2012, February 2-3). Quito Dec-laration. (First Meeting of the Ministers of Environment of Celac).Espinosa, B. (2011, May). Las políticas sociales en Ecuador del siglo XX. In Estado del País, Informe Zero: 1950-2010, 285-290. Quito: Estado del País.Falconí, F. & Oleas, J. (2004). Antología: economía ecuatoriana. Quito: FLACSO Ec-uador.Gallardo, L., Koenig, K., Christian, M., & Martínez Alier, J. (2008, April). Petróleo y cambio climático: el impuesto Daly-Correa. Le Monde Diplomatique 150. ISSN: 1888-6434.Martínez Alier, J. (1994). De la economía ecológica al ecologismo popular. Barcelona: Icaria Editorial.Ministry for the Coordination of Natural and Cultural Heritage. (2010). Yasuní-ITT: una iniciativa para cambiar la historia. Quito.Senplades. (2009). National Plan for Good Living 2009-2013. Retrieved from http://plan2009.senplades.gob.ec/web/enUnited Nations. (1992). Rio declaration on environment and development. (United Na-tions Conference on Environment and Development). Rio de Janeiro.United Nations. (2008). World economic situation and prospects, 2008. New York: Department of Economic and Social Affairs. Retrieved March 2012 from http://www.un.org/en/development/desa/policy/wesp/wesp_archive/2008wesp.pdfZiegler, J. (2011). Destruction massive: géopolitique de la faim. Paris: Éditions du Seuil.

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Convocatoria Número 3

Revista de Política Exterior del Ministerio de Relaciones Exteriores Comercio e Integración

DOSSIER: La paz y la democratización de los organismos multilaterales

LÍNEA SUR recibe de manera permanente contribucio-nes para las secciones Integración y Agenda Estratégica, Entrevista y Coyuntura

Fecha límite de recepción de artículos: 1 de Julio de 2012

Contacto: [email protected]

La construcción del multilateralismo - La reforma de las Naciones Unidas con especial referencia al Consejo de Seguridad y a la Asamblea General - La protección jurídica de la paz y el desarrollo progresivo del derecho internacional - El Consejo de Seguridad y la resolución pacífica de los conflictos internacionales - Las discusiones teóricas contemporáneas relacionadas con la paz y la seguridad - La “responsabilidad de proteger”, la no intervención, el mantenimiento de la paz y la protección a los Derechos Humanos - El Tratado de Tlatelolco, las Zonas de Paz y la No Proliferación - El Desarme Univer-sal, la Conferencia sobre Desarme de Ginebra y el Tratado de Control de Armas de la ONU - El Movimien-to de Países No Alineados y la construcción de la Paz. LÍ

NEA

SUR

REVISTA DE POLÍTICA

EXTERIORSEPT/DIC 2012

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THE ECONOMICS OF SUSTAINABLE DEVELOPMENT IN THE CONTEXT OF RIO+20: AN INTERVIEW WITHLORD NICHOLAS STERN1

Carol López and Daniel Ortega

Climate change constitutes an unprecedented challenge, and international ef-forts to combat it intertwine political and economic interests closely linked to the discussion on sustainable development. The Earth Summit, held in Rio de Janeiro in 1992, called the world’s attention to the urgent need to recognize and respect our delicate global balance, noting the importance of including environmental issues on governmental political agendas. The United Nations served as a channel for dialogue and agreement among nations, which enabled the implementation of the United Nations Framework Convention on Climate Change (UNFCCC). 20 years later, in June 2012, world leaders will meet again in Rio at the United Nations Conference on Sustainable Development, where they will discuss the economic and social consequences and impacts of inaction when facing global environmental problems.

In this context, Lord Nicholas Stern, who played an important role during international negotiations with his internationally recognized “Review on the Economics of Climate Change,” was interviewed during his visit to Ecuador in late March by Daniel Ortega, Director of Environment and Climate Change, and by Carol López, political analyst, regarding his perspective on Rio+20.2

Daniel Ortega & Carol López: As you know, Ecuador is a member country of ALBA, considered to be the “critical conscience” in the UNFCCC’s negoti-ation process, due to its progressive position on several issues. In your report, you affirm the need to reaching consensus on various issues in order to define mutual responsibilities for reducing the risks associated with climate change. However, wouldn’t it be necessary to take into account the climate debt ac-quired by developed countries in order to comply with the basic principle es-tablished by UNFCCC regarding common but differentiated responsibilities? What is your informed, political opinion on this matter?

Nicholas Stern: This issue is more closely linked to moral philosophy and should be treated in that context. I do believe that the problem we are facing is the result of the two defining challenges of this century: overcoming global poverty and managing climate change. If we fail at one, we will also fail at the

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other. If we try to deal with climate change by placing obstacles in the way of overcoming global poverty, then we don’t have the courage to truly manage the problem of global warming. If we fail to manage climate change, we will create an environment so hostile that it could actually reverse the progress we have made regarding poverty reduction. Therefore, both of these challenges should be dealt with together.

Second, in my opinion, by recognizing the connection between these two challenges, we can understand what it means to have equitable access to sus-tainable development. That is the language that was adopted in Cancun in 2010,3 which I consider to be very constructive. It does not mean, of course, that we should choose the path leading to environmental collapse, nor that the present generations fighting against poverty should continue polluting be-cause developed countries have this large debt and responsibility for having contaminated the earth. The Ethiopian Prime Minister made this very clear in Durban during COP17 when he mentioned that it was not those who support-ed fairness and justice who failed the planet in the past.

It seems to me that developed countries have not taken responsibility for pro-viding a different path towards development. Developing countries should exercise the right to choose their path, and they have every right to demand fi-nancial and technological support. Nevertheless, the ethical question of equi-table access to sustainable development has been presented as an afterthought, and wealthy countries should be doing more to support this effort. However, unless they provide ample financial resources and technology, the developing world will be unable to make progress and will simply do the best it can, fol-lowing the same path that the industrialized world has already followed.

For example, if wealthy countries were to reach zero emissions by 2013, which will surely not occur, the emissions budget designated for emerging and developing countries would be 32 or 33 trillion tons of CO2, a non-negligible figure. However, these values will probably be higher, as it is very unlikely that the global emissions budget will be met, unless there is strong initiative by developing countries. Wealthy countries must act with greater conviction and provide support, but I don’t believe that developing countries can wait for this to happen. In fact, what we are seeing now is that they are moving ahead with their own standards for sustainability.

While developing countries demand that wealthy countries support their ef-forts, there are also actions that they could perform in a much more equitable manner, reducing costs and the pressure put on humans. Therefore, in my opinion, our notion of common but differentiated responsibilities is chang-ing, and in a very constructive manner, moving towards equitable access to sustainable development. I think this is a very positive development, some-thing that we began to see in Cancun and continued to see in Durban, partly under the leadership of the ALBA countries. What we do not hear anymore,

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fortunately, is that “unless the rich countries take action, we, the developing countries, will continue to pollute the planet because you did so in the past.”DO&CL: Today, the majority of proposals for the Rio Summit focus on the G-20 guidelines regarding the green economy and green growth as alterna-tives to development. But these proposals have faced strong opposition from civil society, or at least from certain sectors. How can they be reconciled with further analysis on the economics of sustainable development, so they can take into account redistribution and implementation of climate action, in con-nection with the goal of building societies resilient to climate change? And what are the expectations you have for the next Summit on Sustainable Devel-opment in Rio?

NS: I think we should start by focusing on the relationship between human beings and the environment in a more general way, shifting our conception of climate change. In my opinion, sustainable development means improv-ing global living standards, particularly for the poorest. I don’t believe we should present environmental harmony and responsibility as “antigrowth” in this context: I prefer the term, “development.” Really, there is no inconsis-tency between development and the environment, but we have turned it into a horse race, creating the long-lasting illusion of incompatibility between the two. Thus we continue with our current development model, causing further environmental degradation, until growth and development will come to a halt, or even reverse. The challenge is precisely that of equal access to sustainable development, a concept that can best be understood by thinking about how we want our children to have at least the same standard of living that we have had.

It means thinking about development in terms of standards of living, which I believe includes issues like energy, housing, food, health, education, distribu-tion of wealth or income, gender relations, and harmonious social relations. The debate around the Millennium Development Goals, for example, has fea-tured a broader conception, a shared notion of what this concept means. I hope this is recognized at the Rio Summit, and I also hope that we can fulfill two key objectives: defining clear goals for achieving sustainable development and collectively evaluating our progress on those goals. In fact, it would be unfortunate to stop there. The summit’s success will depend on our ability to implement strong, specific programs that embody these ideas and that are not simply aspirations (what I call “aspirational goals”).

This is why I believe in the importance of defining specific methods for im-plementing goals. The best example of this is equal access to sustainable en-ergy. This is a program that could provide sustainable energy to 1.3 or 1.4 billion people who currently do not have access to it. In various cases, we could build decentralized solar panels and local small-scale hydroelectric sys-tems, or implement the sustainable use of biomass, including coal for cooking, which would result in a practical program, requiring funding and monitoring over time. This program represents the meaning of sustainable development

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and embodies this concept in an inclusive way, focusing on those with less resources. Thus, we would be sending a powerful message that sustainable development involves raising material standards; it allows children to read at night and smile. This is what I hope for. Although I am somewhat concerned about the faltering progress in terms of negotiation, I trust that the exchanges between Ecuador and its neighbors will bring ideas to the table. However, I don’t know that people understand the urgency of the Rio summit.

DO&CL: How can we achieve “Good Living” or “sustainable development” in broader terms?

NS: I think that insisting on the idea of well-being and sustainability will appeal to many people. Article 74 of the Ecuadorian Constitution talks about the right to benefit from the fruits of nature. It is important to recognize that this benefit must be obtained in a way that will allow our children to enjoy the same resources that we do. I believe that if you talk about environmental services, well-being, and sustainability, you will reach more people. More-over, I think the rights of nature go beyond these two concepts, although they are very closely related. I offer this little piece of political advice: If you try to express yourself only in terms of the rights of nature, you are likely to lose some potential allies for whom rights are applied primarily to human beings. We are raising a very deep and important philosophical question with this idea. My advice would be to make sure that people understand the concepts of well-being and sustainability, as well as access to environmental services, before jumping into the matter.

I am not suggesting that we downplay the rights of nature in any way. I’m try-ing to think of how we can bring together as many people as possible. In my opinion, the notion of well-being is of enormous importance. It means health and education. It alludes to the relationship between the environment and the people. This is how we can integrate the rights of nature—a concept that many people find difficult to understand—into a simpler kind of language that rep-resents the spirit of what we are aspiring to.

DO&CL: Do you think it is advisable to maintain the current dynamics of the carbon market as a tool for mitigating climate change and energy transition in developing countries, given the strong criticism regarding their operation and real contribution?

NS: There are different methods of financing and marketing the actions that can be taken in the fight against climate change. Marketing, including the relationship between emissions and avoided deforestation (United Nations Collaborative Program on Reducing Emissions from Deforestation and Forest Degradation in Developing Countries, or REDD+), should be integrated into developed countries’ aspirations for emissions reduction. Thus, assuming that Europe decides to go from the 20% established in 1990 to 30% in 2020 (and I

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think it should do so), while simultaneously complementing this decision with REDD+, we would be heading in a positive direction. You can lower costs while remaining ambitious. It is very important to treat these issues together, taking into account three aspects of the problem: establishing more expansive ambitions, keeping down costs, and determining who gets what part of the revenues generated from the implementation of those processes.

Considering these issues, one of the results of the U.N. Secretary-General’s High Level Advisory Group on Climate Change Financing (AGF) was the idea that funds can be obtained by marketing and auctioning off emission permits, and by the occasional implementation of emissions taxes. Some of these reve-nues should be used for issues related to climate change or for the climate fund, with its goal of reaching 100 billion dollars by 2020. So, while some believe—as I learned in the Galapagos—that some countries evade emissions reduction by purchasing permits or by financing reforestation instead of avoiding deforesta-tion, the implementation of the aforementioned proposals makes the dynamics of the carbon market viable, generates revenue for funding, and simultaneously allows for greater aspirations regarding the reduction of emissions.

DO&CL: Do you think it is sufficient to seek innovative mechanisms for the mitigation of climate change, such as the proposed Net Avoided Emissions (NAE) mechanism?4 An example of this is the Yasuní-ITT Project, which, through the political decision to not drill the existing oil in the region, would contribute to a real reduction in CO2 emissions.

NS: I am not an expert on Net Avoided Emissions nor Yasuní-ITT. I have nev-er been there. I would like to go, but I have only read and heard a little bit about the subject. I believe that the protection of the area’s rich forest resources and biodiversity is very important. I believe that we should leave the oil under-ground because we’ve already discovered more than we can exploit.

From an analytical point of view, the problem lies in how to leave this amount of hydrocarbon underground, which will reduce global carbon emissions over the next 30 or 40 years. It is not clear how much emissions will be reduced, as so much depends on what strategy the rest of the world develops to reduce carbon emissions. If we decide that we can rely on a limited available supply of hydrocarbons, the question arises, who can sell how much? And if a country declares that it will not use its share, this could lead to increased emissions elsewhere. This is related to a third question, that of emissions exchange or trade, with which I find some serious practical difficulties. It depends on there being an effective reduction of emissions by leaving the oil underground. Ob-viously, you can try to create a model that can be solved analytically. I know that Ecuador takes these analytical aspects very seriously. However, I think

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that in this context, we should tell the world what to do. This is a question that will emerge during the debate, and Ecuador must have a response.

Footnotes

1. The interview, transcription, and translation were completed with the help of Analiz Vergara of the Department of the Environment and Climate Change, Ministry of For-eign Affairs, Trade and Integration of Ecuador.2. This interview was held in Quito on Friday, March 30, 2012. Lord Nicholas Stern (b. April 22, 1946) is a British economist and academic. His research and several of his publications have focused on the economic aspects of climate change, economic development and growth, the role of the state, and economies in transition. Since June 2007, he has been IG Patel Professor of Economics and Government at the London School of Economics, and since April 2008, he has been Chair of the LSE’s Grantham Research Institute on Climate Change and the Environment.3. Here, Lord Stern refers to the Conference of the Parties (COP16), held in Cancun in 2010.4. Net Avoided Emissions is a compensatory mechanism designed for developing countries that avoid activities that would increase CO2 emissions. The concept was introduced by President Rafael Correa during the Conference of the Parties (COP 16), Cancun, 2010.

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ELOY ALFARO: LATIN AMERICANIST REVOLUTIONARY1

Juan J. Paz y Miño

Revolutionary Liberalism

Between 1850 and 1880, there was a significant rise in liberalism in all Latin American countries (Carmagnani, 1975, p. 12), which can be explained by the region’s relative economic modernization, its integration into the capital-ist world market (not without correlative social tensions), European cultur-al influence, the development of positivism, and general discontent with the Catholic Church, which allied itself with conservative governments given the economic power that tied it to the oligarchic sector (Rama, 1978, p. 110).

The actions of the liberal bourgeoisie challenged conservative policy and en-abled certain social transformations through the expansion of democracy, the abolition of slavery, the introduction of working wages, institutional and legal reform, the encouragement of foreign investment, and the development of an ever-expanding market economy.

In various countries of the region, liberals, driven by the modernization of economic, social, and cultural conditions, and energized with political fer-vor, committed themselves to fighting against what they called “obscuran-tism, tyranny, and feudalism.” They declared themselves as civilized and as culturally and materially advanced by demanding political representation of the common people and the genuine observance of their rights and liberties. Conservatives were considered representatives of the past, of oppression, and of the people’s misfortune.

The liberal project was able to mobilize itself and confront the landowner oligarchies, the clergy, and the governments of the time, considered despotic, ignominious, and tyrannical.

Ecuadorian Liberalism

Ecuador also experienced the surge of Latin American liberalism, although the regional divisions that the country experienced led to extreme political bipartisanship unique to this country. An incipient commercial and financial bourgeoisie appeared on the coast, along with a landlord class and agricultural

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cocoa bean exporters. In the highlands, the oligarchic and landowner system from the colonial era persisted, personified by a powerful landowner class that maintained the large Andean indigenous population under its exploitative control.

These processes of economic and social differentiation led to liberal domi-nance on the coast and conservative dominance in the highlands. Both polit-ical parties maintained opposing convictions concerning the organization of the state, political and government practice, and the scope of civil rights and liberties (Hurtado, 1977).

The first decades following the establishment of the Ecuadorian Republic were marked by government instability, anarchy, and secessionism. Conser-vatives and liberals reflected factional positions more than clarified and co-herent projects, similar to the discord between Federalists and Confederates (or Centralists) in other countries, conservatives and liberals in Mosquera’s Colombia, the “Whites” and “Reds” in Rivera and Oribe’s Uruguay, the po-litical factionalism in Rosas’ Argentina and in Santa Anna’s Mexico, and the greenhorns and bigwigs in Chile, all of whom “conceal, above all, self-in-terested intentions,” to quote the Peruvian historian, Luis Alberto Sánchez (1949, p. 152).

Eloy Alfaro: International Revolutionary

With the establishment of Gabriel García Moreno’s regime, which dominated Ecuadorian politics between 1860 and 1875, the liberal project began to pro-mote its cause. Eloy Alfaro (1842-1912) was involved with this project from a young age.

When the young Alfaro learned that liberals from Manabí2 were preparing an anti-García insurgency, he appeared before their leader, Manuel Albán, offer-ing the fortune with which his father had entrusted him. The movement was part of a general uprising led by the ex-president, soldier, and liberal leader, José María Urbina. Once Alfaro met with Urbina in Peru, he returned to Ec-uador to create the first peasant militia in 1864. But Alfaro was forced to flee to Panama when faced with the failure of the movement and García Morena’s subsequent repression.

Alfaro returned the following year with the purpose of inciting an insurrec-tion in Manabí, but this new attempt, supported by Urbina, also failed. As a result, Alfaro decided to settle in Panama, where he made his fortune, joined the Freemasons, and established friendships with expatriates and liberal poli-ticians with whom he continued planning the liberal appropriation of political power. Again Alfaro offered his economic resources to this cause. From Pana-ma he financed an anti-García uprising in Manabí in 1871, in an unsuccessful attempt to position Vicente Piedrahita as Supreme Commander.

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Línea Sur | Historical archives of the Ministry of Foreign Affairs

In the revolt of 1876, Alfaro intended to establish Nicolás Infante as the leader of Ecuador, but once the conspiracy was discovered, the liberal forces gath-ered around Ignacio de Veintemilla, whose deeply corrupt and autocratic gov-ernment (1876-1883) betrayed the interests of liberalism, which suffered from attacks by organized insurgencies. By then, the political coherence of Alfaro, who had been persecuted and victimized, and his demonstrated revolutionary commitment made him the principal leader of the liberal cause in Ecuador.

During the last two decades of the nineteenth century, Latin American liberal leaders made a genuine commitment to establish their own regimes over the conservative system that they hoped to overthrow. Under these circumstances, the internationalist vision took root as a critical component of revolutionary activities. Abroad, resources were mobilized, supporter associations began to form, and plans were put into action to rally around liberal governments that had managed to attain power. Finally, the liberal campaign converted itself into an American cause.

Eloy Alfaro, who was living as an expatriate in Panama, strengthened allianc-es not only there, but also in the various countries through which he traveled. Like others, he declared his support for the Cuban patriots who yearned for their island’s independence, he participated in subversive plans, he interceded on behalf of his colleagues, and he revived interest in unifying Gran Colom-bia, a goal inspired by the ideas of Bolívar, whom Alfaro greatly respected.

Reconstructing Bolívar’s Dream of Gran Colombia

On the eve of his departure for Ecuador, “to take part in the sacred and hon-orable campaign that the nation has undertaken against the vile dictatorship that is insulting the dignity of republican America,” Eloy Alfaro addressed his people in the Proclamation of January 27, 1883:

If not for gratitude, then as a show of patriotism, we should strive to pay homage to our illustrious forefathers of the 10 of August in Quito and the ninth of October in Guayaquil: to crown the great work of Bolívar the Lib-erator and the honorable Sucre; this should be the aim of every honest man and the fruit of our patriotic efforts (quoted in De Janón Alcívar, 1948, p. 55-56).

Once he joined the rebellion against Veintemilla, in his capacity as Supreme Commander of the provinces of Manabí and Esmeraldas, Alfaro presented a communication to the Assembly, convened in Quito on October 9, 1883, in which he stated, “We Ecuadorians who will forever adore the everlasting memory of Bolívar, as well as the virtues of the honorable Sucre, should fa-vor the peaceful reconstruction of Gran Colombia” (quoted in Janón Alcívar, 1948, p. 63).

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The same year, General Guzmán Blanco, President of Venezuela, had con-vened an International Congress in Caracas in honor of the centennial of Bo-livar’s birth. The Congress was entrusted with defining borders between the neighboring countries, establishing defensive alliances, and acting as arbiter to settle disputes. Also, a pact was made between the Colombian and Ecuador-ian liberals, represented by the interim President of the state of Cauca and by Colonel José Luis Alfaro, respectively, affirming mutual support between the countries and the shared objective of resurrecting Gran Colombia (Rodríguez Roditi, 1968, p. 79).

At that time it was nothing more than a political statement, but the summons from Guzmán Blanco seemed viable, and Eloy Alfaro, from his exile in Lima, sent a letter to the Venezuelan president on January 9, 1887, in which he gave an account of his last communication of 1883 to the Constituent Assembly, declaring:

But not always, nor in all regions, are grand ideas embraced, or to speak more frankly: In that Assembly, factional words were spoken without thought or insight, expressed by the tyrants of my country, and I have since had to dwell in exile, where I have not ceased to fight one single day, tooth and nail, and I shall continue to fight until I see the idea triumph (quoted in De Janón Alcívar, 1948, p. 64).

Immediately, by means of a Credential Letter and asserting himself as “Com-mander of the Ecuadorian Revolution and under the full powers vested in me by both public and private proceedings in Ecuador, as well as by proclamation of the expatriates in Colombia and Peru,” Eloy Alfaro declared his brother Marcos to be the Diplomatic Agent for the reconstruction of Gran Colombia, based on the federal system and representing the Liberal Party of the Nation, so that:

...he can negotiate, with the Honorable President of Venezuela, General Guzmán Blanco, an offensive and defensive alliance which will serve as the foundation of Gran Colombia, based on the Federal or Confederate system, and which will safeguard the dignity and mutual interests of both countries (quoted in De Janón Alcívar, 1948, p. 68).

This stand was unusual, because revolutionaries in exile represented by Eloy Alfaro were actively supporting a project attributable only to fully constitut-ed governments. They designated for the first time an official Party ambas-sador who acquired an international legal status, and they agreed to extend state power to the margins of the institutional system. However, these actions were understandable given the full-blown struggle in Ecuador against the “ring-leader” government presided over by José María Plácido Caamaño, who had resumed a policy similar to that of the old García regime—branded by liberals as a “terrorist” regime—that was therefore intolerable for them, who

Eloy Alfaro: Latin Americanist revolutionary | Juan J. Paz y Miño

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envisioned their victory as inevitable. Marcos Alfaro, addressing Guzmán Blanco in a letter dated April 28, 1887, says:

I must say ... that in my opinion and the opinion of the Ecuadorian Liber-al Party that I represent, there has never been a time as conducive to the realization of the Colombian Union as the present one, and never after the Liberator has there been another man as capable of carrying it out as His Excellency .... Let us add the support of the Ecuadorian Liberal Party to the prestige of the name of H.E., to the power of the Venezuelan government that supports the idea, to the very goodness of the cause, and the Colom-bian Union will become a matter of days and a matter of Governments coming to agreements (quoted in De Janón Alcívar, 1948, p. 65-66).

Marcos further explains that Peru would feel more secure “against the quickly approaching dismemberment of its territory by Bolivia, supported by Chile”: The simple act of rebuilding Gran Colombia would justify even “the sacrifices of the war waged to either bring into being the Colombian Union or to main-tain it.” Likewise, what is happening with Peru “is happening with our neigh-bor to the north, the Republic of Costa Rica, segregated from the political community of Central America.” Perhaps one day, once the Panama Canal is opened, “it will come to be an integral part of Colombia, motivated by its own intentions, for reasons of mutual convenience and security”; and therefore:

... this will be a great day for the Americas because the Colombian Union will in turn form a Central American Union with the remaining four re-publics. Who knows if afterwards God will stir the patriotism of Central Americans, and they will enable the power of Colombia to break away the border with Mexico (quoted in De Janón Alcívar, 1948, p. 66).

The fervor of Ecuadorian liberalism exceeded the original integrationist proj-ect. Upon informing Eloy Alfaro about his mission in a letter from Caracas dated April 13, 1887, Marcos writes:

On the other hand, it would be a good idea for Guzmán Blanco to broaden the policy, considering that, once the Panama Canal is opened, Costa Rica must integrate itself into the Colombian Union, for that little republic’s own security and convenience, and moreover, because the Colombian ter-ritory should not end in a point at the Isthmus, but rather it is necessary to define better geographical boundaries on that side. In light of this, I think that Guzmán will want to seriously consider this proposal and should start working on it. This would kill two birds with one stone, because if Costa Rica joins Colombia, the rest of the Central American Union will become a reality by inevitable necessity. A Resident Secretary in San José could gain much ground, and our cause would enjoy immense advantages under his influence. But in the end these things take time, and it is advisable to keep them in mind only as a suggestion to General Guzmán. The English

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Company, owner of part of Venezuelan Guiana, will naturally focus the at-tention of the Venezuelan Government on that matter only, to the detriment of others: Only God knows the outcome of the matter. It is said of Guzmán that he will not accept any bargaining on that territory (quoted in De Janón Alcívar, 1948, p. 67).

However, the romantic undertaking ended badly, not only because Ecua-dorian liberalism did not rise to power and Guzmán Blanco had to face domestic problems, but also because of the Latin American social struc-ture, class conflicts, factionalism, parochialism of the dominant sectors, and even the interests of imperialist countries, which at the time began to make themselves heard. Also, Ecuadorian liberalism’s attention was absorbed by domestic affairs.

In Lima in about 1889, Alfaro met with General Joaquín Crespo, who had served as President of Venezuela, and they agreed to help each other imple-ment liberalism. Crespo entered Caracas triumphantly on October 6, 1892, and informed Alfaro through Sergio Pérez. Crespo summoned Alfaro to hammer out the details for the liberal victory in Ecuador, Colombia, and the Central American countries. Having moved to Caracas, Crespo informed him about the revolutionary plans and authorized to wire him 500,000 bo-livars. Alfaro boarded a ship in La Guaira bound for New York and made the necessary contacts to withdraw the first funds from Crespo’s wire. He continued on to California, and afterwards, to Mexico, then acting as an in-termediary. Nicaraguan President José Santos Zelaya—who had supported a liberal revolution since his rise to power in 1893 against the conserva-tive government of Honduras under General Domingo Vásquez—also sum-moned Alfaro, who arrived and settled in León (Loor, 1947, p. 309-310).

The friendship between Alfaro and Crespo acted as a precursor to this sum-mons, as well as the enormous prestige Alfaro had gained in 1890 when, faced with the imminent armed conflict between Guatemala, Honduras, and El Salvador, he officially intervened, seeking conciliation between these countries, and had managed to summon a Central American Diplomatic Congress in the Salvadoran port of Acajutla, in which Nicaragua and Cos-ta Rica were also represented. During this Congress, the foundations of a peace treaty were accepted by the rulers of the three nations. This was a crowning accomplishment for the Ecuadorian leader and awarded him re-gional prestige (Rodríguez Roditi, 1968, p. 106-113).

With the purpose of obtaining resources and support, Alfaro left Nicara-gua en route for New York, secretly negotiating with liberals in Panama, establishing relations with Antonio Maceo and José Martí in Costa Rica, and obtaining the necessary assistance required for his mission. All this allowed General Anastasio Ortiz to depose General Vásquez in Tegucigal-pa and assume the presidency (Loor, 1947, p. 311-312). The Nicaraguan National Assembly conferred upon Alfaro the rank of “Division General in


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the Army of the Republic” in a January 12, 1895 decree, “in response to the high personal merits of Sir Eloy Alfaro and his great service to the cause of Latin American democracy” (Pérez Concha, 1978, p. 92; Loor, 1947, p. 312, note 270).

In the wake of their success, Joaquín Crespo (Venezuela), José Santos Ze-laya (Nicaragua), Juan de Dios Uribe (Colombia), and Eloy Alfaro (Ecua-dor) signed a treaty known as the “Amapala Pact” in which they committed to help each other advance the liberal cause. Crespo and Zelaya committed themselves to this mission as the leaders of their respective countries. In light of this new alliance, Zelaya put the ship Momotombo at Alfaro’s ser-vice. Alfaro then traveled to Costa Rica to gather weapons and resources for the revolution in Ecuador, but as the liberal campaign appeared to be unfolding first in Colombia, the weapons were made available to the Colom-bians. Antonio Maceo personally donated 1,000 pesos to the Ecuadorian liberals. Alfaro returned to Nicaragua (Troncoso, 1966, p. 73).

Then, while living in Lima, the strongly idealistic Alfaro debated with Nicolás de Piérola, the leader of Peru in 1879, about the feasibility of creating a South American Confederation. In 1889, Alfaro met with General Joaquín Crespo, with whom he discussed the possible reconstruction of Gran Colombia, as well as reaffirmed their agreement to support each other (de Janón Alcívar, 1948, p. 68-69; Rodríguez Roditi, 1968, p. 88). And because the liberal cause urgently needed resources and support, Eloy Alfaro used his status as a rev-olutionary leader to begin an international campaign to extend the reach of Ecuadorian liberalism and to enhance his image as a persevering leader.

Alfaro also became friends with General Antonio Maceo, who was traveling through the Americas rallying support for the Cuban struggle. Alfaro cam-paigned in Valparaíso, Santiago, and Buenos Aires, where he met Mitre. From there he moved on to Montevideo and Rio de Janeiro, until finally settling in Caracas. Later, he headed to New York, Costa Rica, and Panama. During Alfaro’s travels, Antonio Flores Jijón, the President of Ecuador, allied himself with the Colombian government to have Alfaro exiled from this country. Al-faro moved to Costa Rica, and from there again to New York, San Francisco, Mexico, and El Salvador. During this time, he also intervened in the affairs of President José Santos Zelaya to resolve the conflict in Central America, thanks to his friendship with the presidents of Guatemala, Honduras, and El Salvador. He settled permanently in Nicaragua (Pérez Concha, 1978, p. 89-92). There, he learned that Luis Cordero had been named Supreme Commander of the Republic in a proclamation in Guayaquil on June 5, 1895, and he discovered that the public did not support this event. Alfaro immediately departed for Ecuador. The Liberal Revolution had finally begun.

Eloy Alfaro was President of Ecuador between 1895 and 1901, and from 1906 to 1911. He introduced an era of the most important changes that had occurred

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in the country since independence: the separation of church and state, the implementation of secular education, civil marriage, civil registry, the foun-dation of teacher training institutions, health and infrastructure projects, the construction of a railroad between Guayaquil and Quito, the encouragement of domestic industrial production, business development, incorporation into the capitalist world market, the modernization of the public sector, gender in-tegration, and a series of social measures to serve the working class and the in-digenous population. It was a revolutionary government, against which conser-vatives and the Church fought against relentlessly, but it ultimately prevailed. Once in office, Eloy Alfaro decided to fulfill the internationalist commitments he had undertaken.

In 1897, a Nicaraguan liberal leader, Fernando Sánchez, emissary of President Zelaya, visited Alfaro in Ecuador, and the two discussed the unification of Gran Colombia. Upon their return to Nicaragua, Sánchez and Zelaya spoke with ex-iled Colombian liberals in their country. Sánchez, appointed by Alfaro as the Ecuadorian Secretary of Foreign Affairs in Nicaragua, traveled to Caracas to negotiate the establishment of Gran Colombia with the Venezuelan President, General Joaquín Crespo, who had been in agreement with the proposition since the time of his exile in Lima. The undertaking advanced with the next Vene-zuelan President, Cipriano Castro, and the Colombian liberals, while Sánchez continued campaigning in Mexico (1902), making propositions to President Porfirio Díaz, who continued to be hesitant (Rodríguez Roditi, 1968, p. 89-90).

Because the liberals had lost power in Colombia, the most important goal be-came the mission to restore this control. The Colombian revolutionaries ap-pointed Gabriel Vargas Santos as Executive General and Interim President, and the country plunged into the “Great War” or the “Thousand Day Revolution” (1899-1902), perhaps the cruelest and bloodiest of all Colombian civil wars, which ended with a victory by the conservatives, despite the international sup-port the liberals received (F.T.D., 1967, p. 232-234; Granados, 1964, p. 368-377).

Earlier, in his 1898 communication to Congress, President Alfaro perceptively noted:

The respect which I hold for the heroes of our independence, who be-queathed to us a homeland, the most powerful in South and Central Amer-ica, impels me to focus my attention on our current shortcomings and im-potence, and to suggest actions that we should undertake in order to ensure a bloodless future of admirable brotherhood.

For the time being, it is not possible to begin planning the reconstruc-tion of the bygone, glorious Colombia of Bolívar; but it would be feasible to form a united Confederation, before the world, composed of the people who won their independence on the battlefields of Carabobo, Boyacá, and Pichincha.


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Once this union has been formed, these nations will continue to exercise sovereignty with regard to internal affairs, as they currently do, and as they have always done. However, regarding foreign affairs, they shall form a single political entity, consisting of Venezuela, Colombia, and Ecuador.... (Rodríguez Roditi, 1968, p. 93-94).

In order to achieve this goal, Alfaro suggested a Commissioner System among the three countries, which would involve organizing an international body that would have the advantage of “solving our border issues, so threatening and of the greatest relevance, which would subsequently become insignificant, like family quarrels, once we have established a functioning brotherhood,” in the words of Alfaro (quoted in Rodríguez Roditi, 1968, p. 94). This perspective reflected the specific goal of resolving the border conflict between Ecuador and Peru, a problem with such grave consequences during the republican pe-riod of the country, and that could not be solved by the reconstruction of Gran Colombia.

Alfaro therefore asked for authorization from Congress:

...to propose, without delay, to the governments of Caracas and Bogotá, the convening of a preliminary Congress, which would establish the grounds for the great Confederation, to be verified afterwards, of course, with the mutual agreement of the peoples concerned (quoted in Rodríguez Roditi, 1968, p. 94).

At the Congress of 1899, he again emphasized the possibility of a Gran Co-lombian Union (quoted in Rodríguez Roditi, 1968, p. 94), and in his 1900 Pres-idential Address he informed the Legislature of the steps undertaken, adding:

This great ambition, pulsing in the veins of every noble patriot, has been warmly welcomed in principle, and, without the enormous political revolts which shake Colombia, I now have the honor of announcing in this Address the convening of that system which will consolidate our respectable repu-tation in the world and our contentment with the union, given the establish-ment of a genuine alliance of international interests among the three sister nations (quoted in Rodríguez Roditi, 1968, p. 94).

The Three Year War made the venture unfeasible, but Eloy Alfaro’s persever-ance paid off, and the Colombian Patriotic Association proclaimed on April 26, 1901: “The undersigned members of the Great Liberal Party of Colom-bia, fully authorized and possessing special documents, proclaim as Supreme Commander of the Great Confederation of former Colombia, the eminent ad-vocate of liberty, the DISTINGUISHED GENERAL ELOY ALFARO” (quot-ed in Rodríguez Roditi, 1968, p. 91-92).

Alfaro resumed government duties in 1906, and was congratulated by the President of Colombia, General Rafael Reyes, upon inaugurating the railway

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from Guayaquil to Quito on June 25, 1908. In his congratulatory message, Reyes reaffirmed his faith in Gran Colombia: “When the tracks unite Quito with Bogotá and Caracas, we can begin to hope that Bolivar’s Gran Colombia will be reestablished, and that his progeny will be content, and that their lib-erty will be made effective by ruling justice and order” (quoted in Rodríguez Roditi, 1968, p. 97).

In his reply, Alfaro emphasizes the idea of the Gran Colombian System, noti-fying Congress on August 10, 1908 of this project, and then further persisting in his Address on August 10, 1910 (Rodríguez Roditi, 1968, p. 97-99). The following year, Alfaro sent the Venezuelan president, General Juan Vicente Gómez, a warm greeting reviving the memory of the Colombian Confeder-ation, a proposal that coincided with an event commemorating Venezuela’s independence (de Janón Alcívar, 1948, p. 70). To celebrate this event, on June 5, 1811, the Venezuelan government invited the five republics liberated by Bolívar, including Bolivia and Peru, to an international conference to establish the Bolivian Nation, to which José Peralta was appointed as the Ecuadorian representative, who presided over the delegation.

The results of the conference were not favorable, and Alfaro pointed out in his report to the 1911 Congress:

The government of the United States of Venezuela, on the occasion of the centennial celebration of its political emancipation, invited the five repub-lics liberated by Bolívar to a congress, at which the foundations of the union of these states were to be agreed upon. As was expected, the Ecua-dorian government accepted the fraternal invitation and, according to the wish of the Venezuelan Ministry of Foreign Affairs, our Delegates were provided with full powers to enter into a final and dignified agreement with Peru within this Assembly. Unfortunately, as the corresponding Secretary will explain to you, the Peruvian Commissioners emphatically stated that their nation would not accept any arrangement with Ecuador, and that the Union should be arranged on the basis of absolute arbitration regarding any kind of difference of opinion. In light of such statements, the Delegation of Ecuador was obliged to submit a detailed explanation of their negative vote, which the Secretary of Foreign Affairs will dispatch, and that has been sent to our comrade nations for their knowledge (quoted in Rodríguez Roditi, 1968, p. 104-105).

Alfaro’s second administration, hounded by the opposition, was in grave dan-ger of collapse, and in 1911, a resistance movement brought his term to a halt. After a failed attempt to retake power, the “Old Fighter” and his principal supporters were arrested. They were taken to Quito on the same railway built by Alfaro and, once in the capital’s jailhouse, were assassinated by a frenzied mob on January 28, 1912. Alfaro’s body was dragged through the streets and burned in El Ejido Park. Historian Alfredo Pareja Diezcanseco named this event the “Barbaric Bonfire.” Along with Eloy Alfaro, the Gran Colombian ideals of liberalism also died.


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Solidarity with Cuba

In 1873, Eloy Alfaro was living in Panama, and was an active leader in the branch of the “Friends of Cuba” Society (Goncharov, 1979, p. 44). Among Alfaro’s many close friends were Antonio Maceo, José Maceo, Máximo Gó-mez, Flor Crombet, Eusebio Hernández, Rafael María Merchán and Miguel Albuquerque. Just a year and a half before the triumph of liberalism, Alfaro had discussed a plan with Maceo and Jose Martí to send armed Ecuadorian, Colombian, and Nicaraguan liberals to intervene and aid in the Cuban rev-olution. Martí was convinced that liberalism would triumph in Cuba before Ecuador, and that Alfaro should therefore occupy himself with more urgent domestic affairs. However, the “Old Fighter” insisted that it would really be the other way around. In February 1895, the Cuban Revolution broke out, but by June, Eloy Alfaro had already risen to power in Ecuador (Pareja Diezcan-seco, 1944, p. 179; Rodríguez Roditi, 1968, p. 25; Goncharov, 1979, p. 45).

Thereafter, Ecuadorian solidarity with Cuba intensified. Eloy Alfaro ordered Colonel León Valle Franco to organize a military expedition composed of battalions of liberal Ecuadorian veteran guerrillas, but the Colombian gov-ernment thwarted the undertaking by not allowing the passage of troops across the Isthmus of Panama. However, Alfaro continued to discuss the Cu-ban situation with Miguel Albuquerque, the designated secret financial agent in Ecuador (Pareja Diezcanseco, 1944, p. 179; Goncharov, 1979, p. 46). On December 19, 1895, seven days before convening an International Congress in Mexico, General Alfaro sent a letter from Guayaquil to the Queen of Spain, María Cristina, stating that the people of Ecuador “are shaken by the bloody and destructive struggle that is being fought by Cuba, for its political eman-cipation, and by our motherland, for its integrity,” and that, interjecting his good will “as any emancipated son would do to his loving mother,” he ad-dressed her “so that Your Majesty, in your wisdom and guided by humane and noble sentiments, insofar as Your Majesty would depend on them, would not spare the adoption of any decent measures that would restore peace to Spain and Cuba.”

Alfaro added a particular historical consideration:

Our history reminds us that for fifteen long years Colombia fought for its independence and won victory at the expense of over two hundred thou-sand lives, the almost total elimination of its public and private wealth, and a legacy of floating debt of two hundred million pesos. The passing of time has been necessary for the former colonies, now established as sovereign nations, to officially resume the bonds of friendship with the motherland. Spain lost almost all of its trade with the Americas; nevertheless, once obtaining independence, Colombia allowed the raising of the Spanish flag at its ports and assured that the Spanish were welcomed there as brothers.

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In my view, such great evils could have been avoided if Spain had not ignored the wise counsel that the British Cabinet gave at the opportune moment, namely, that Spain should make peace with its colonies and rec-ognize their independence, provided that the Spanish nation would still enjoy special benefits, established in a solemn pact between the two agents, an event that was still possible at the time.

The flow of trade between Spain and her colonies would not have been shut off and the contact between the two peoples would not have suffered. Your Majesty knows it was only under the reign of Your Majesty’s spouse, Sir Alfonso XII, remembered with glorious acclaim, that official relations between Spain and her children came to be cordial.

It seems prudent now to abide by the lessons from this experience and the advice of the British Cabinet, given the similarity between the two giv-en situations. Thus Spain will protect her interests and will have done jus-tice to the aspirations of Cuba, without discrediting her own honor (quoted in De Janón Alcívar, 1948, p. 356-359).

Alfaro wanted the letter in favor of Cuba’s independence to be a collective effort, so he sent the corresponding communication to the presidents of Colombia, Ven-ezuela, and Peru, but they nevertheless refused to join the cause. The Colombian president even ordered the governors of the state to prohibit the collection of donations to help the Cubans and to hand over the proceeds to the Spanish Red Cross, an attitude which earned him the Grand Cross from Isabel the Catholic, awarded by the court of Spain (Goncharov, 1979, p. 47).

The government of Spain was indifferent and the letter apparently did not even merit consideration. But Alfaro made his message public and the newspapers of various countries published it. The attitude of the Supreme Commander of Ecuador was praised by some and repudiated by others.

The 1896 Congress of Mexico

Given the stubborn reaction of the English against Venezuela’s claims to Guiana, Spain’s reaction when faced with Cuban independence, and his commitment to regional integration and the need to address the political ubiquity of the United States, on December 26, 1895, Eloy Alfaro circulated a letter among the various Ministries of Foreign Affairs in the Americas, inviting them to participate in an International Congress to be held in Mexico on August 10, 1896, in commemo-ration of Ecuador’s “First Cry for Independence.”

The main purpose of this meeting would be the formation of an American Pub-lic Law “that, leaving intact legitimate rights, gives the Monroe Doctrine, ini-tiated with such glory by the illustrious Secretary of State, all the legitimacy it deserves and the necessary means to enforce it.” Furthermore, as stated in the official announcement, the congress would seek to strengthen international rela-tions, consolidate peace on the continent, discuss and resolve all matters relating


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to the progress and welfare of the various republics (except regarding border dis-putes), discuss economic progress and dictate appropriate action, and promote any action that would be useful for mutual advancement (de Janón Alcívar, 1948, p. 376; Rodríguez Roditi, 1968, p. 37-40). Even though such a vast program was still very generalized, it managed to interest several countries, including El Sal-vador, Chile, Bolivia, Guatemala, Honduras, Paraguay, Costa Rica, Venezuela, Nicaragua, and Mexico, while Argentina and Peru anticipated joining the project in the future.

Because the official announcement affected the interests of the United States (in fact, the United States had long manipulated the Monroe Doctrine to its advantage in order to secure its hegemonic project in Latin America), and because it was losing the initiative, its attitude from the beginning was in op-position. Ecuador’s Secretary of Foreign Affairs in Washington reported in a public notice that he had approached the Secretary of State, Mr. Olney, who had accepted the idea of the congress provided that all other republics of the Americas participate. Mr. Olney also expressed the desire that the congress be held in Washington. However, the Ecuadorian Secretary of Foreign Affairs, Luis Felipe Carbo, had been asked to omit the reference to the International Congress in his endorsement speech before the President. The Mexican Secre-tary of Foreign Affairs, Matías Romero, reported to his government on Wash-ington’s “complete lack of interest” in carrying out the event, and the Mexican Chargé d’Affaires, Miguel Covarruvias, reported to his superiors that, accord-ing to Mr. Olney, the purpose and goals of the meeting had not been clearly de-fined. Because of this confusion, there needed to be space for debate between the United States and the major South American powers before convoking the congress, in order to come to an agreement on certain priorities. In addition, if the official announcement were worked out in Washington, the United States government would not be willing to compromise with Alfaro, as “Ecuador did not have sufficient prestige to undertake or to carry out an enterprise of the importance that a Congress of the Americas should have.” Furthermore:

... it would be unwise to debate the Monroe Doctrine, now that the Unit-ed States is negotiating a very important general treaty of arbitration with Great Britain that could result in the settling of the border dispute between Venezuela and British Guiana (Robalino Dávila, 1974, p. 214, 242, 245, 250).

As the United States was not willing to alter its interpretation of the Monroe Doctrine or discuss a possible regional integration policy that might dispute its hegemonic position, it boycotted the International Congress, throwing off public opinion and pressuring other countries to boycott as well.

On August 10, 1896 the representatives of Ecuador, Mexico, Nicaragua, Guatemala, Costa Rica, El Salvador, Honduras, and the Dominican Repub-lic3 gathered at the Palace of Chapultepec in Mexico. Due to the absence of

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the majority of countries invited, the assembly of delegates resolved that “the Congress will not take place, and therefore, the assembly calls for its dissolu-tion” (Robalino Dávila, 1974, p. 223).

Nevertheless, a conclusive “Report on the Monroe Doctrine” was approved, a truly pioneering undertaking of a radical anti-interventionist, and certain-ly anti-imperialist, stance. This report concluded that the defensive attitude of the United States was attributable to motives other than those concerning its boycott of the Congress; attitudes that Simón Bolívar had invoked at one time: The Monroe Doctrine did not keep British ships from blockading San Juan de Nicaragua and the coast of El Salvador, nor halt British and French intervention in Argentina. It did not inhibit the Spanish fleet from bombarding Valparaíso, nor stop the War of the Triple Alliance in Mexico. In the Report, it was noted that this doctrine, from its inception, was nothing less than an inter-national code of conduct, applicable according to the will of the United States.

On the other hand, the report recognized the groundbreaking impact that the Monroe Doctrine had at the time of its approbation. It was argued that its le-gitimacy was in jeopardy due to it being a unilateral policy, and that it had to be submitted for legal analysis in order to be legislated as multilateral policy that applied to all of the Americas. In addition, it must be noted that in 1848, President Polk had been about to annex the Yucatán to the United States, and in 1871, President Grant had failed to secure the consent of Congress to do the same with Santo Domingo. Furthermore, the words of President Porfirio Díaz regarding the potential repercussions that the doctrine could have were incorporated into the report, which concluded with the drafting of an agree-ment that was approved unanimously (Robalino Dávila, 1974, p. 224-231).

Although the Congress in Mexico was not successful,4 it did have important legacies which cannot be underestimated. After the 1826 Congress of Panama, convened by Simón Bolívar—comparable to the Congress in Mexico in its magnitude—the Congress of 1896 focused on defending Latin American ter-ritory against imposing forces, and disregarded the United States’ self-inter-ested proposals. It was the first time that a unilateral policy was reconstructed and converted into a multilateral project.

Because of his focus on regional integration, Eloy Alfaro is not only an Ec-uadorian legacy: With the passage of time, he has been recognized as a truly great Latin-Americanist public figure. His revolutionary work and legacy con-tinue to enlighten us today.


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Footnotes

References

Carmagnani, M. (1975). América Latina de 1880 a nuestros días. Barcelona: Edi-ciones Oikos-Tau S.A.de Janón Alcívar, E. (1948). El viejo luchador, su vida heroica y su magna obra: com-pilación de documentos histórico-gráfico-literarios (Vol. 1). Quito: Empresa Editora Abecedario Ilustrado. F.T.D. (1967). Historia Patria. Bogotá: Editorial Champagnat.Goncharov, V. (1979). Ecuador: tierra y hombres. Guayaquil: Casa de la Cultura Ecu-atoriana, Núcleo del Guayas.Granados, R.M. (1964). Historia de Colombia, la independencia y la república. Bo-gotá: Biblioteca Colombiana.Hurtado, O. (1977). El poder político en el Ecuador. Quito: Centro de Publicaciones de la Pontificia Universidad Católica del Ecuador.Loor, W. (1947). Eloy Alfaro, 1842-1895 (Vol. 1). Quito: Editora Moderna.Pareja Diezcanseco, A. (1944). La hoguera bárbara I: vida de Eloy Alfaro. Mexico City: Compañía General Editora.Paz y Miño, J. (1984). Eloy Alfaro y liberal americanismo. La unidad latinoameri-cana, ADHILAC. Quito: Editorial Voluntad.Paz y Miño, J. (2007). Eloy Alfaro y el liberalismo latinoamericanista. In J. Paz y Miño (Ed.), Removiendo el presente: latinoamericanismo e historia en Ecuador. Qui-to: Abya Yala.Pérez Concha, J. (1978). Eloy Alfaro: su vida y su obra. Guayaquil: Departamento de Publicaciones de la Universidad de Guayaquil.Rama, C. M. (1978). Historia de América Latina. Barcelona: Editorial Bruguera.Robalino Dávila, L. (1974). Orígenes del Ecuador de hoy (Vol. 7, Part 1). Puebla: Editorial José M. Cajica Jr. S.A.Rodríguez Roditi, V.H. (1968). La doctrina internacional del General Eloy Alfaro y su trascendencia en el derecho público americano. Guayaquil: Editorial Casa de la Cultura Ecuatoriana Núcleo del Guayas.Sánchez, L.A. (1949). Historia general de América (Vol. 2). Chile: Ediciones Ercilla.Troncoso, J.C. (1966). Vida anecdótica del General Eloy Alfaro. Quito: Editorial Santo Domingo.

1. For further reading on this topic, see Paz y Miño, 1984, 2007.2. Manabí is a province on the Ecuadorian coast.3. Robalino lists the following attendees: “Ignacio Mariscal, Secretary of Foreign Af-fairs of Mexico; Emilio de León, Envoy Extraordinary and Minister Plenipotentiary of Guatemala and Honduras; Luis F. Carbo, Envoy Extraordinary and Minister Plenipoten-tiary of Ecuador; Dr. Luis Felipe Borja, Delegate of Ecuador; Rafael S. López, Envoy Extraordinary, Minister Plenipotentiary, and Delegate of El Salvador; Senator D. Gen-aro R. Raigosa, Senator D. Alfonso Lancaster Jones, and Deputy D. Francisco L. de la Barra, Delegates from the government of the Mexican States; Francisco de la Fuente Ruiz, Envoy Extraordinary and Minister Plenipotentiary of the Dominican Republic, and Deputy D. Magin Llanero, Delegate from the government of Nicaragua” (Robalino Dávila, 1974, p. 219).4. According to Luis Felipe Borja, Delegate from Ecuador at the Congress of Mexico, the Congress failed not only due to the United States’ actions, but also because of Mexi-co’s and Venezuela’s positions. On the other hand, the Secretary of Foreign Affairs, Luis Felipe Carbo, complained about the lack of timely instructions given by the Ecuadorian government (Robalino Dávila, 1974, p. 232-236).

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TIMELINE OF FOREIGN AFFAIRSDecember 1, 2011 – March 31, 2012Andrés Naranjo Vinueza

December

December 2, 2011

President Rafael Correa and the Minister of Foreign Affairs, Trade and Integration, Ricardo Patiño, at-tend the Summit of the Community of Latin American and Caribbean States (Celac), held on December 2 in Caracas, Venezuela with the pres-ence of 32 leaders.

December 19, 2011The Presidents of Ecuador and Co-lombia, Rafael Correa and Juan Manuel Santos respectively, meet in Quito, where they sign a joint dec-laration on issues such as security, migration, transportation, energy, refugee issues, border integration, and trade. They reaffirm their com-mitment to Andean Community of Nations (CAN) Decision 399, reiter-ating that the arrangements made by border transporters cannot counter-act the Andean regulations for inter-national transport of goods by road.

They also agree to train the armed forces and the police with the goal of enhancing security and control in the border zones in order to ensure the protection of citizens. Regard-ing migration, they order authorities to implement Decision 545, Andean Labor Migration Instrument. Also, the construction of a four-lane bridge (and its respective highways) on the Mataje River is agreed upon, as well as the reinforcement of the bridge over the San Miguel River.

December 20, 2011During his visit to Uruguay, President Rafael Correa declares that Ecuador is considering joining the Southern Common Market, Mercosur. The Ministry of Foreign Affairs’ techni-cal team meets with Mercosur’s High Representative and the delegates of member states to discuss the possi-bility of the Andean country’s entry into the economic commonwealth.

December 30, 2011The Chief Negotiator of Yasuní-ITT, Ivonne Baki, announces the fund-raising goal of $291 million from the international community by the end of 2012.

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Línea Sur | Timeline of Foreign Affairs

January

January 10, 2012Foreign Minister Ricardo Patiño at-tends the inauguration of President Daniel Ortega of Nicaragua, convey-ing the fraternal greetings of Ecuador to the re-elected president. In past elections, the Sandinista National Liberation Front received 62.46% of the votes for president and vice pres-ident, the majority of seats in the As-sembly and in the Central American Parliament.

January 12, 2012Iranian President Mahmoud Ah-madinejad fulfills a busy schedule in Quito, where he meets with the Pres-ident and Minister of Foreign Affairs. The Ecuadorian president reiterates the sovereign position that Ecuador maintains on international relations, saying, “I will not allow external pressures to dictate our bilateral re-lations.”

January 18, 2012Nathalie Cely presents her credentials to U.S. President Barack Obama as Ecuador’s Ambassador to the United States. She also conveys Rafael Cor-rea’s message of Ecuador’s desire for closer ties between the two nations. For his part, President Obama recalls that the two countries have a long history and appreciates Ecuador’s

demonstrated leadership in promot-ing peace and stability in the region and combating drug trafficking.

January 26, 2012Regarding the negotiations between Ecuador and the European Union to reach a trade agreement, the Foreign Minister, Ricardo Patiño, announces that Ecuador has officially respond-ed to recent questions from the E.U. on December 29 through a commu-niqué that Vice Minister of Foreign Affairs Francisco Rivadeneira sent to the European Commission’s Deputy Director General, Joao Aguiar Mach-ado. They annex the Organic Law of Popular and Solidarity Economy and the General Regulations of the Organic Law of the National Public Procurement, so that E.U. negotia-tors can discuss the legal standards that must be taken into account in the negotiations.

January 30, 2012Ecuador attends the 18th African Union Summit for the first time as an observer. The meeting is intended to follow up on commitments made at the last ASA meeting held in Mala-bo last November. Ecuador calls for strengthening South-South relations, for which it proposes eight projects to be discussed by ASA working groups, according to the decision made at the last meeting of foreign ministers and senior officials.

February

February 2, 2012Based on the boundary treaties of 1916 and 1975, and on the political decision of the presidents of Ecuador and Colombia, the foreign ministers of both nations, in Cali, agree on the

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coordinates of the starting point of the maritime boundary in the mouth of the Mataje River.

February 5, 2012Ecuador assumes ALBA’s econom-ic-polical coordination. The decision was made during the XI Summit of Heads of State held in Caracas. The Economic Secretariat shall consist of the Ministers of Economy and Fi-nance of ALBA’s member nations, and will aim to establish policies that strengthen regional, productive, and trade integration.

February 23, 2012President Rafael Correa meets with China’s Vice President of Political Consultative Conference, Bai Lichen, at Carondelet Palace and expresses his satisfaction with the visit. Meanwhile, Bai Lichen conveys the message from Chinese ruler Hu Jintao, “I hope the friendship between the two countries will last forever.”

February 29, 2012The first Binational Cabinet meeting between Peru and Ecuador is held. The presidents and foreign ministers of both countries are in attendance. They reiterated the progress made in the development of road connectivity, cross-border flights, and the Puyan-go-Tumbes Project.

March

March 9, 2012Ecuador, Mexico, El Salvador, and Bolivia adopt a resolution entitled, “Indigenous Women: Key Players in the Eradication of Poverty and Hun-ger,” in the context of the 56th session of the United Nations Commission on the Status of Women (CSW).

The document urges states to promote public policies in favor of indigenous women, to provide investment and technical support for the promotion and protection of women’s rights and their empowerment, and to provide support for economic activities, taking into account their traditional knowl-edge and improving their access to land, seeds, and other productive in-puts. Additionally, the document spec-ifies concrete steps to guarantee the highest attainable standard of health for indigenous women, including sex-ual and reproductive healthcare, and access to greater justice and all levels of education without discrimination.

March 11, 2012The foundations for Ecuador’s trade policy are presented during a meeting held in Guayaquil between Foreign Minister Ricardo Patiño and produc-ers, exporters, and business associ-ations. The results obtained during President Rafael Correa’s mandate are presented, and more specifically, since the Foreign Minister began to direct the respective Ministry.

March 13, 2012Foreign Minister Ricardo Patiño, ac-companied by Vice Minister of For-eign Affairs Francisco Rivadeneira arrive in Ankara for an official vis-it prior to the meeting between the

december 1, 2011 – March 31, 2012 | Andrés Naranjo – Vinueza

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Línea Sur | Timeline of Foreign Affairs

Presidents of the two nations. The foreign ministers of both countries sign several agreements: the Cooper-ation Framework Agreement; Agree-ment on Cooperation in the Field of Tourism; Framework Agreement on Cultural and Educational Coopera-tion, and a memorandum of environ-mental understanding, which seeks mutual cooperation on developing premises and possible actions for en-vironmental protection.

March 27, 2012The 85th meeting of the Council of the International Cocoa Organization is held in Ecuador, which composes 62% of the world market of fine and aromatic cocoa. Recovery strategies established during the meeting will help strengthen Ecuador’s position as the main producer and exporter of fine and aromatic cocoa.

March 28, 2012The Monitoring Workshop is held with U.N. Special Rapporteur on contemporary forms of slavery, Gul-nara Shahinian, regarding the imple-mentation of the recommendations made after her first visit to Ecuador in 2009, specifically on issues of forced labor, child labor in the min-ing sector, and domestic work.

March 29, 2012At the Inter-American Commission on Human Rights, Foreign Minister Ricardo Patiño ratifies that respect for human rights has led to institu-tional changes in Ecuador. The Min-ister states that the Commission’s actions and those of its Rapporteur have consequences that affect po-litical sectors and Ecuador’s image abroad. Foreign Minister Patiño de-clares that the fact that the Commis-sion’s headquarters is in Washington, the capital of a country that has not ratified the Agreement, and therefore is not obliged to fulfill it, has permit-ted the United States to deny or delay visa requests for persons officially convened by the Commission. (One case is that of Franklin Aisalla’s par-ents.) He therefore suggests that the Permanent Council discuss the possi-bility of changing the Commission’s headquarters.

March 30, 2012Regarding the response that Ecuador requested from the Commission on the precautionary measures grant-ed in favor of the directors of the El Universo newspaper, the Secretary General of the OAS, José Miguel In-sulza, said that the measures are ap-propriate in every sense, “in order to protect rights that if violated at any given time are without repair, such as death, torture, repression, etc. That is what precautionary measures are for; therefore, I believe that they are not for everything.”

Regarding the proposal to move IACHR headquarters to a member country, he mentioned that the OAS was prone to structural reorganiza-tion in general, and that there was a possibility that certain organisms

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Línea Sur : The Foreign Policy Journal of the Ministry of Foreign Affairs, Trade and Integration

Quito, Ecuador ©2012

DOSSIER

CRISIS 2.0Robin Blackburn

INTEGRATION: South America’s responseto the crisis of the global orderRicardo Aronskind

ECONOMIC INTEGRATION: European retrospective,Latin American horizons Manuel Cerezal

NEOLIBERAL CRISIS AND THE RECONFIGURATIONOF THE STATE: Ecuador and South American heterodoxy Franklin Ramírez

PROSPERITY AND ECONOMIC GROWTH Fander Falconí

STRATEGIC AGENDA AND INTEGRATION

THE EX ANTE IMPACTS OF THREE TRADEAGREEMENTS ON THE ECUADORIAN ECONOMYVíctor Aguiar, Hugo Jácome and Mayra Sáenz

CURRENT AFFAIRS

‘LOSING’ THE WORLD: American decline in perspective Noam Chomsky

AUDIOVISUAL MEDIA: Indispensable regulations Santiago Druetta

RIO+20 CONFERENCE: Ecuador’s innovative proposalsMaría Fernanda Espinosa and Helga Serrano

INTERVIEWTHE ECONOMICS OF SUSTAINABLE DEVELOPMENT INTHE CONTEXT OF RIO+20:An interview with Lord Nicholas SternCarol López and Daniel Ortega

HISTORICAL ARCHIVES OF THE MINISTRYOF FOREIGN AFFAIRSEloy Alfaro Latin Americanist revolutionaryJuan J. Paz y Miño

UNDERSTANDING CHINA: FUNDAMENTAL COMPONENTS OF A MUTUALLY BENEFICIAL AGENDA pp 123-139

Documents

Transcript of UNDERSTANDING CHINA: FUNDAMENTAL COMPONENTS OF A MUTUALLY BENEFICIAL AGENDA pp 123-139