Tag: Jomo Kwame Sundaram

Middle-Income Country Trap? — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Nov 22 (IPS) – In recent decades, failure to sustain economic progress has been blamed on a supposed middle-income country (MIC) trap. Such blaming obscures as much as it supposedly explains.

The ‘middle-income trap’ fable began as a World Bank story about why upper MICs in Latin America failed to become high-income countries (HICs) after pursuing policies required or prescribed by the Bretton Woods institutions.

Bretton Woods’ Frankenstein
The 1944 Bretton Woods rules-based international monetary system ended in August 1971 when President Richard Nixon unilaterally repudiated US obligations. This happened after the US Treasury had borrowed heavily from the rest of the world from the 1960s.

Jomo Kwame SundaramThe US government’s ‘exorbitant privilege’ of ‘spending well beyond its means’ has continued despite the resulting international monetary ‘non-system’. Continuing acceptance of the US dollar, or ‘greenback’, as the virtual world currency has enabled its Treasury to borrow internationally at low cost.

This has enabled the US to maintain massive trade and current account deficits, and a military presence in much of the world, despite its huge, but still growing fiscal and trade deficits. The US exorbitant privilege seems to have been sustained by its ‘soft power’ and unassailable military superiority.

Facing ‘stagflation’ – economic stagnation with inflation – US Fed chair Paul Volcker raised interest rates sharply from 1980. This soon killed US inflation, but also Roosevelt’s ‘New Deal’ legacy from the 1930s.

With inflation high, real interest rates seemed low despite high nominal interest rates in the developing world. With growth high in the global South in the 1970s, borrowing to sustain investments, even from abroad, remained attractive.

But US interest rate hikes soon triggered fiscal and sovereign debt crises in many countries: Poland in 1981 was followed by various Latin American, African and other developing economies.

Washington Consensus
Facing rising interest rates, many governments could no longer service accumulated debt, let alone borrow to invest more. Instead, they had to pursue contractionary monetary and fiscal policies domestically, causing economic stagnation.

With Margaret Thatcher and Ronald Reagan demanding such macroeconomic policies, the Washington-based Bretton Woods institutions soon prescribed them, ending the post-Second World War Keynesian ‘Golden Age’.

The International Monetary Fund (IMF) demanded contractionary stabilisation policies to qualify for short-term credit facilities. World Bank structural adjustment programmes (SAPs) typically required economic liberalisation and privatisation for longer-term financing.

The Bank also advocated more export-orientation and foreign investment. When paid by Japan’s government, the Bank celebrated its post-war industrial boom as a ‘miracle’, a new model for emulation. But this soon ended with its demise due to the US-demanded overvalued yen and its ill-advised financial ‘Big Bang’.

Latin American conundrum
Latin American and other vulnerable economies lost over a decade from the 1980s while African economies lost a quarter century. Low-interest official Japanese credit initially mainly went to Southeast Asia, while South Asia took on less foreign debt.

Stabilisation and SAP conditionalities undermined Latin America’s modest industrialisation, which also prevented the region from recovering strongly until the new century. But their economies had not been sufficiently liberalised for ‘neoliberals’ despite turning more to foreign trade and investment from the 1980s.

Prosperous economies became more protectionist, especially after the 2008 global financial crisis. But developing countries were told to open up even more despite shrinking export markets.

But with globalisation over, even East Asia can no longer rely on export growth. Also, it is difficult to turn away from export-oriented production, especially as earlier trade deal commitments cannot be unilaterally repudiated.

In many prosperous economies, workers captured some of their productivity gains. But the oft-heard claim that productivity increases lag behind wage rises usually serves employers. In most ‘labour-surplus’ developing countries, wages remain low.

As in South America early this century, progressive redistribution has often accelerated, rather than subverted growth. Common claims that such redistribution is bad for growth must be critically reconsidered. After all, progressive redistribution sustained growth in post-war Europe.

Breaking out of the trap
The ‘middle-income trap’ argument claims MICs cannot sustain rapid economic progress. Supposed reasons vary with policy and ideological biases, as ostensible structural, cultural, political, behavioural or governance causes typically reflect such prejudices.

Recent narratives have proclaimed the need to ‘graduate’ from secondary to tertiary economic activities. Modern services growth is supposedly needed to sustain progress to become HICs.

Another popular argument has been that progressive redistribution has subverted growth. But it is now uncontroversial that progressive redistribution was crucial for sustaining growth in post-war Europe.

Discretionary state powers have undoubtedly been abused for political patronage and self-aggrandisement. Clientelism plagues many societies, undermining needed state interventions. But we should not throw the baby out with the bathwater.

History suggests the best way to overcome the ‘middle income trap’ would be to implement appropriate investment and technology policies. Selective policies are needed to promote growth, not only of manufacturing, but also of high-end services, as well as safe, nutritious and affordable food supplies.

But all this is not going to happen spontaneously. Reforms need to be deliberately elaborated and sequenced through various interventions as part of well-designed, coherent and sustained initiatives.

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New Cold War Weapon Backfires — Global Issues

  • Opinion by Jomo Kwame Sundaram, Ong Kar Jin (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Nov 15 (IPS) – US President Joe Biden’s Indo-Pacific Framework for Prosperity (IPEF) is the economic arm of his administration’s Indo-Pacific Strategy, aimed at countering China’s influence in the region.

Despite its lofty pronounced goals, IPEF’s shortcomings expose a disconcerting lack of political will, inconsistent trade policies, and US inability to match China’s infrastructure initiatives.

Ong Kar Jin

Bull in a China shop?

Launched in Japan in May 2022, IPEF was widely touted as the Biden administration’s better follow-up to Trump’s withdrawal from Obama’s Trans-Pacific Partnership (TPP).

Many had anticipated a robust reply to China’s growing economic influence in the region, particularly following US depiction of the Regional Comprehensive Economic Partnership (RCEP) as an instrument of Chinese expansion.

China may well stand to benefit most from RCEP by virtue of its size and economic relations with the region. But outside the US echo chamber, RCEP is seen as truly East Asian led. It has involved not only ASEAN leadership, but also Japan, South Korea, Australia, New Zealand and Singapore, all long-term US allies.

In sharp contrast, IPEF has disappointed many. It seems to be little more than a half-hearted economic cooperation appendix to the Biden administration’s Indo-Pacific strategy.

The alternative US infrastructure initiative – coordinated with NATO allies in Europe – is small potatoes compared to the Asian Infrastructure Investment Bank, which – unlike most of its allies – the US has attacked from the outset.

Also, the US has no answer to China’s flagship ‘Belt and Road Initiative’ (BRI) – which succeeded ‘One Belt One Road’ (OBOR) and earlier Chinese Silk Road initiatives. BRI ostensibly focuses on critical transport and communications infrastructure like internet cables, roads, ports and railways.

These projects are seen as directly contributing to economic development, making them highly attractive to developing nations. In contrast, IPEF offerings appear more like diplomatic gestures with little for infrastructure development.

The chasm between IPEF’s lofty rhetoric and its actual content shines light on modest US capacities and commitment. US inability to offer substantial benefits through IPEF not only jeopardizes its standing, but also cedes influence to China.

Jomo Kwame Sundaram

Domestic quagmires bog down IPEF

The hasty negotiations are seen as catering to the Biden’s re-election campaign. This is a far cry from what US allies were expecting, to signal greater commitment to the region. In its current form, IPEF offers little in tangible benefits.

As a Biden White House initiative without Congressional support, IPEF is dismissed in some circles – especially in the US – as part of Biden’s re-election strategy. It will most certainly be dropped if he does not secure a second term.

The irony is palpable: while there is bipartisan agreement to ‘contain’ China, US politics is so mired in partisan squabbles that it fails to act, even when interests are aligned. This lack of political will is not just a domestic failing; as a result, the international community sees the US as unreliable.

No more trade liberalization?

Despite decades of ‘free trade’ rhetoric from the US, its NATO allies, the Bretton Woods institutions and others, US commitment to trade liberalization has long not been taken seriously, especially since the Trump administration.

Before that, the Obama White House had blocked appointments to the World Trade Organization’s dispute settlement panel, effectively rendering the WTO’s most important component dysfunctional.

IPEF’s modest content is largely due to increasingly hostile US public sentiment on trade liberalization. By 2016, most presidential candidates seeking to succeed Obama – from both major parties – opposed the TPP.

While most US voters know nothing about IPEF, ‘outsourcing’ manufactured imports is widely seen as behind the decline of US manufacturing, as well as related ‘good’ jobs and incomes.

While many initially expected a more Obama-like approach from the Biden administration, policy developments so far suggest Trump’s ‘America first’ rhetoric and policies are here to stay.

Unsurprisingly, the White House has promised IPEF would “ensure American workers, small businesses, and ranchers can compete in the Indo-Pacific”. US domestic re-industrialization efforts have already triggered more blatant protectionism since Trump.

Biden’s Inflation Reduction Act denies Hyundai, the Korean industrial conglomerate, as well as other foreign automotive brands, the significant tax credits available to domestic electric vehicle manufacturers.

Outdoing Trump, the Biden administration has broadened technology bans and restrictions, e.g., in its ‘microchip war’ with China. US allies – notably the Netherlands and South Korea – have largely agreed to restrict chip technology exports to Chinese companies.

Ceding regional hegemony

While initially welcomed despite qualms, IPEF has not been attractive to the region, especially to developing countries, including India. It does not even offer US market access, a staple of earlier free trade agreements. Instead, it mainly seeks to impose new standards associated with the new US protectionism.

IPEF’s lack of tangible benefits is unlikely to be of much interest to member governments and prospective members, let alone their publics. Worse for the US, IPEF’s modest offer may unwittingly strengthen longer term concerns about US hegemony and leadership, instead of restoring confidence in it.

The largely cool and ambivalent reception to IPEF reflects a divide. On one side, the US and its allies seek to strengthen their hegemony in the region. On the other are the mixed interests and ambivalent attitudes of others, mainly developing countries, coping with US-China rivalry.

IPEF’s fate is compounded by domestic political constraints on US foreign policy, which have reduced its room for manoeuvre. To be attractive to the region, IPEF needs to offer more tangible benefits to current and prospective members, especially developing countries.

Thus far, it has appealed to fears of Chinese expansionism and its alleged ‘debt traps’. For all but the staunchest US allies, however, concerns about privacy, surveillance or sovereignty are secondary to the need for finance and economic development.

China understands this, often sweetening its infrastructure deals, and making them more attractive to developing countries. Without a more generous response, it will be difficult to overcome IPEF’s current reputation as a low-cost means to enhance US dominance of the region.

Currently, the US is imposing itself on, rather than trying to be supportive of the region. Hence, the IPS and IPEF run the risk of simply being the latest in a series of US hegemonic initiatives from the first Cold War’s Southeast Asian Treaty Organization (SEATO) in the 1950s to Obama’s TPP.

Ong Kar Jin is an independent researcher and writer focusing on the socio-political dimensions of technology.

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PPPs Fiscal Hoax Is a Blank Financial Silver Bullet — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Nov 08 (IPS) – Public-private partnerships (PPPs) for infrastructure and service provision are both costly and risky. Worse, PPPs typically fail to ensure universal, let alone fair access to public amenities.

Public-private partnerships?
PPPs usually involve long-term contractual arrangements in which private businesses provide infrastructure and services traditionally provided by governments. In recent years, PPPs have built or run hospitals, schools, prisons, roads, airports, railways, water and sanitation.

Jomo Kwame SundaramRisk-sharing between public and private sectors has long been widespread. In recent years, more than two dozen different types of PPPs have been identified. Such variations reflect differences in deals between governments and commercial partners.

Most international financial institutions (IFIs) advise governments to guarantee profits for their private partners. The IFIs continue to urge governments to ‘de-risk’ commercial providers to attract their investments.

Private investor preferences for specific types of PPPs may vary over time and with circumstances, often reflecting changing needs and priorities. As no one type fits all, changing circumstances and preferences have increased the variety of PPPs.

PPP problems
PPPs are far more complex than suggested by their cheerleaders’ narratives. Their negative impacts on infrastructure and public service delivery have been highlighted again by a Eurodad-led report. Public expenses rise as governments bear private costs and risks.

Following World Bank and other IFI advice, national authorities attract commercial financial investments by appealing to private greed. PPPs have been used to ‘de-risk’ such investment, by using their terms to ensure profits for private investors.

The report also exposed PPPs’ negative impacts for democratic governance. PPP arrangements typically lack transparency, and rarely involve prior consultation with affected communities. Thus, they have been more prone to corruption and abuse.

While private partners are guaranteed profits, their PPPs may still fail. In recent years, PPPs’ fiscal and other costs kept mounting as their shortfalls grew despite their rising profitability. As such problems grow, criticisms and dissent have risen.

Why PPPs fail?
PPPs have increasingly been touted as the magic solution to many problems, particularly financial constraints, poor management and delivery. PPPs have become popular among elites in the global South, where their ‘middle classes’ were enticed by the promise of better services and ‘trickle-down’.

The private sector is supposedly more efficient and better able to deliver public amenities including energy, education, health, water and sanitation. But better value for money has rarely ensued, as many studies show. Instead, the converse is more typical.

A 2020 study by the European Federation of Public Service Unions and Eurodad identified eight major reasons why PPPs in Europe have not improved outcomes.

First, PPPs rarely raised additional funds. Instead, they have typically incurred more public debt in the form of government guarantees, rather than direct borrowing. But such additional public debt has often been obscured from the public.

Second, private commercial loans generally cost much more than government borrowings. Third, public authorities, especially central governments, still bear ultimate responsibility, especially in the event of project failure.

Fourth, PPPs have rarely delivered better ‘value for money’ than reasonably managed public projects. Fifth, seeming PPP efficiency gains have been largely due to risky cost-cutting, e.g., in public infrastructure or healthcare provision.

Sixth, PPPs distort public policy priorities, typically requiring even more cost-cutting. Seventh, PPPs have rarely delivered both ‘on-time’ and ‘on-budget’. Eighth, PPP deals are typically opaque, rather than transparent, often involving abuses and corruption.

From early 2020, the Covid-19 pandemic exposed the long-term adverse effects of earlier austerity and underfunding of public health. More recently, inflation, stagnation and more extreme weather have exposed other vulnerabilities and their causes.

What can be done?
As the world faces multiple and interconnected crises, PPPs offer bogus, even dangerous solutions. Eurodad has made policy recommendations to national governments and development finance institutions (DFIs) to improve infrastructure and public service financing.

• Stop promoting PPPs. The World Bank, IMF, regional development banks and DFIs should all end the promotion of PPPs, especially for social services. Access to health, education, water and sanitation should not depend on capacity to pay.

• Fiscal and other major PPP risks should be publicly acknowledged. Governments should be warned of PPPs’ generally poor outcomes, and of the pros and cons of various financing arrangements. DFIs should all more effectively finance national plans for sustainable and equitable development.

Countries should be helped to find the best financing means to deliver responsible, transparent, gender-sensitive, environmentally and fiscally sustainable public infrastructure and social services consistent with national and multilateral obligations.

• Informed public consultations should always precede any infrastructure and public service provision agreement by PPPs. These should include ensuring the rights of all affected communities, including those to fair remedy or compensation.

• Exercise rigorous and transparent government regulation, especially for public spending, PPP contract values, project impacts, and long-term fiscal implications. The public interest must always prevail over commercial ones.

DFIs should only finance projects serving the public interest. Appropriate, publicly funded public services should be promoted, with transparent contracts for and accountable reporting on social service and infrastructure project delivery.

PPPs have often proved to be budgetary frauds, exacerbating, rather than reducing national fiscal deficits. Far from being the financial silver bullet they have been touted as, PPPs have proven to be blanks, making much noise, but with little real benefit.

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Even Rich Nations Now Worried About ISDS — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Nov 01 (IPS) – Governments the world over are worried about investor-state dispute settlement (ISDS) rules. These allow foreign investors to sue them for billions over new laws or policies reducing their profits.

Typically favouring powerful transnational corporations (TNCs), ISDS blocks policy changes needed to address new challenges. Companies have successfully sued governments for policy changes which allegedly reduce their profits.

Jomo Kwame SundaramThe wicked of Oz
Tobacco giant Philip Morris tried to block the Australian government’s demand for ‘plain packaging’, with larger and more graphic health warnings on cigarette packs, by suing under ISDS and also in Australian courts. In the domestic case, Australia’s highest court ruled the legislation constitutional.

The company then transferred Philip Morris Australia to Philip Morris Asia in Hong Kong. Invoking ISDS in the bilateral investment treaty (BIT) between Australia and Hong Kong, it sued Australia. Luckily, the ISDS tribunal ruled it had no jurisdiction as considering the case would constitute an abuse of process.

More recently, Australian Clive Palmer has hired a former Attorney-General to demand nearly A$341 billion from state governments after moving his major mining companies to Singapore in 2019. His two ISDS claims invoke the Australia-New Zealand-ASEAN Free Trade Agreement (ANZAFTA).

The first seeks about A$300 billion in compensation and for ‘moral damages’ after Australia’s highest court ruled in favour of the Western Australian (WA) state government. Palmer is challenging the 2022 WA legislation to indemnify the state, ensuring he would get nothing.

He is also demanding A$41.3 billion in compensation for rejecting exploration permits for the Waratah coal mine in Queensland. The licence was refused on environmental grounds, including increasing carbon emissions.

Palmer is expected to take a third ISDS case against Australia’s Federal and Queensland government decisions to reject his coal mine licence application due to its likely adverse impacts on the local environment, including waterways, and the Great Barrier Reef.

Even if the governments win these cases, they would still incur millions in legal expenses. The Philip Morris cases against Australia took five years, and cost A$24 million in legal expenses, of which only half was recovered by the government.

Evading ISDS?
After such costly experiences, almost a decade ago, Australia successfully demanded a ‘tobacco carve-out’ to the Trans-Pacific Partnership’s (TPP) ISDS provisions.

Australia’s new Southeast Asia Economic Strategy to 2040, announced on 6 September 2023, promises to review existing free trade agreements (FTAs) with the region. This will include agreements containing ISDS clauses, including the ANZAFTA and other bilateral and plurilateral agreements.

Using side-letters, Australia has already opted out of the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP) ISDS provisions with both the UK and New Zealand.

In an ISDS case, the World Bank Group’s International Centre for the Settlement of Investment Disputes ruled Pakistan had to pay over US$5.8 billion to an aggrieved investor. This is equivalent to its entire US$6 billion new IMF loan, about an eighth of its annual budget.

Other ISDS second thoughts
The New Zealand government is now also against ISDS. While ISDS is part of several of its FTAs – e.g., the CPTPP and China-New Zealand FTA – its government has opposed ISDS provisions in FTA negotiations since 2018.

Hence, there is no ISDS in the Regional Comprehensive Economic Partnership (RCEP), the New Zealand-United Kingdom FTA, and the New Zealand-European Union FTA.

While it was considered too late to exclude ISDS entirely from the CPTPP at a late stage in negotiations, New Zealand has secured side letters with Australia, Brunei, Malaysia, Peru and Viet Nam. This means ISDS does not apply between New Zealand and these countries.

The current Chilean government is also concerned about ISDS. Hence, it has asked all other CPTPP governments for side-letters excluding ISDS between them, but only New Zealand has agreed so far!

Rich nations wary of ISDS
The US removed most ISDS provisions when the Trump administration replaced the old North American Free Trade Agreement (NAFTA) with the US-Mexico-Canada Agreement (USMCA) in 2020.

ISDS was in the TPP because Obama administration negotiators wanted it. But most 2016 presidential aspirants to succeed him, including Democrats, rejected the TPP. Trump’s US Trade Representative (USTR) Lighthizer specifically cited ISDS as the reason for US withdrawal from the TPP.

Biden and his USTR have maintained Trump’s anti-ISDS stance instead of reverting to Obama’s position. ISDS is not in Biden Administration ‘economic cooperation’ agreements such as the Indo-Pacific Economic Framework.

Meanwhile, the EU is urging withdrawal from the Energy Charter Treaty (ECT) as its ISDS provisions will block needed European climate policies. Several EU and non-EU countries have already begun withdrawing from the ECT, arguing it constrains their ability to act against global warming.

Developing countries saying no
Many developing countries have already been withdrawing from their BITs while the RCEP does not include ISDS. So, the CPTPP, other BITs and FTAs’ ISDS provisions are out of date. Worse, they block addressing emergencies, such as the COVID-19 pandemic and global warming.

Countries should reject and even withdraw from BITs and FTAs with ISDS. After all, there is no evidence ISDS attracts foreign direct investment. More and more developing nations – including India, Indonesia, Pakistan, Ecuador, South Africa, etc. – have already withdrawn from such BITs.

Governments should urgently review and remove ISDS provisions in all existing BITs and FTAs, or withdraw from them, to avoid more costly ISDS cases. They must be more critical and careful in ensuring future economic cooperation agreements to ensure they really serve their current and future best interests.

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Action Delayed, Justice Denied by Voluntary ESG Approach — Global Issues

  • Opinion by Jomo Kwame Sundaram, Siti Sarah Abdul Razak (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Oct 25 (IPS) – Policy approaches relying solely on voluntary actions to address urgent needs are unlikely to succeed. Depending on optional compliance to address global warming will not fix things in time.

Regulation for transformation
Tariq Fancy, former Chief Investment Officer for Sustainable Investing at BlackRock, had created a storm with his criticisms of ESG (environmental and social governance) ‘greenwashing’, remaining wary of voluntary corporate-led reforms.

Jomo Kwame SundaramNevertheless, judicious and effective regulation based on ESG principles, combined with changing incentives and increased public awareness, can incentivize companies to do better.

Fancy believes changing rules for better regulation is essential for better outcomes. Limiting greenhouse gas (GHG) emissions is essential to ensure responsible governance aligned with the long-term public interest.

Investment managers have several responsibilities – including fiduciary duties, legal obligations, and financial incentives – requiring them to prioritize short-term profitability rather than sustainability.

Fancy believes imposing financial costs will provide stronger incentives for corporations to pursue greener alternatives. After all, voluntary measures are rarely enough to ensure sufficient adoption of sustainable practices.

Changing regulations to incorporate sustainability considerations should require portfolio managers to prioritize social and environmental concerns, and make choices supporting long-term sustainability goals.

Profits not aligned with public interest
Fiduciary duties oblige company managers to always act in the best interest of shareholder profits. This means ESG initiatives will only happen if they help, or at least do not hurt, profitability.

Fancy noted managers are not allowed, by law, to sacrifice potential profits from shareholder investments. They are legally obliged to never sacrifice shareholder interests, especially profitability, for anything else.

Social, cultural and media shifts in the West have undoubtedly influenced transnational business behaviour. The popularization of ESG discourses reflects these trends, but there is no strong evidence of their efficacy and positive impact.

Fleeting episodes of public attention cannot even ensure long-term protection of the public interest. With managers constrained by their fiduciary duties, relying on corporations to do the right thing is neither reliable nor sufficient.

Relying on corporate social or environmental responsibility may well become a distraction, delaying urgent and much-needed efforts. This failure underscores the need for government regulation and corporate compliance to achieve vital social and environmental goals.

Quick fixes delay progress
Fancy found many people believe safeguarding investment portfolios from climate risks prevents global warming. But safeguarding finance from climate risks is not the same as mitigating climate change.

De-risking finance means protecting the financial value of an investment portfolio. This includes protecting against asset damage, or reducing the risk of lower investment returns, but certainly not climate change mitigation.

Mitigating climate change requires proactive measures to reduce GHG emissions. This includes measures to generate and use clean, especially renewable energy.

Financial protection is important for financial asset owners, but it cannot replace the efforts needed to fight climate change. Worse, believing such measures address the climate crisis serves to delay government interventions and other changes needed to do so.

Climate inequity
Climate change exacerbates inequality, which in turn delays progress. The intergenerational distribution of the burden of climate risks disproportionately affects younger and future generations.

This deters proactive measures, as older generations are less inclined to spend more now for future generations who will suffer more from global warming. Instead, they may prefer measures to better adapt to its contemporary effects.

Aside from younger and future generations, the more vulnerable will also bear its worst effects. Thus, for example, small farmers in developing nations will have to cope with increased droughts, floods and crop failures.

Thus, further progress on climate change is delayed due to financial short-termist thinking, business interests, limited contemporary accountability for future consequences, as well as political and cost considerations.

Developing nations, with much smaller per capita carbon footprints, typically lack resources, leaving them more vulnerable. Meanwhile, developed countries, the major historical greenhouse gas emitters, have more resources to slow and adapt to climate change.

Can ESG principles help?
Will businesses maintain commitments to ESG ‘principles’ over the long term? They are legally obliged to maximize shareholder interests, especially profits, and also know public interest, attention, sentiment and priorities are always changing.

Business leaders may only commit to ESG principles in the long term if compelled to embrace them owing to the pecuniary costs of ignoring them. Obligations to other stakeholders – including investors, customers and employees – can also help sustain ESG commitments.

Establishing clear governance arrangements for ESG oversight, setting measurable and achievable goals, reporting regularly, and ensuring comprehensive organizational accountability should also help.

But ultimately, regulation should appropriately advance social and environmental responsibility, with such commitments sustained despite shifting public attention, fads and profit concerns.

Are voluntary efforts enough?
The COVID-19 experience has also taught us to prioritize proactive, systemic and mandatory measures, rather than rely solely on voluntary efforts. While voluntary efforts can advance sustainability efforts, the pandemic experience suggests they will not be sufficient to achieve needed changes soon enough.

A systemic approach can induce businesses and individuals to do the needed. Policy interventions, especially regulation, are essential to drive systemic changes on a large scale, and to align businesses and individuals with ESG principles.

Clear communications, transparency and collaboration – among governments, businesses and civil society – are crucial for achieving long-term sustainability and progressive social change.

To control the pandemic, governments adopted ‘all of government’ and ‘whole of society’ approaches, imposing strict mandatory lockdowns, but also providing vaccinations to all, and support to the vulnerable.

Similar top-down approaches may be needed to effectively address social and sustainability challenges. This could involve implementing regulations, standards and incentives promoting, even requiring, sustainable practices.

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Insider Expos頯f ESG Greenwashing — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Oct 18 (IPS) – A senior manager of the world’s largest investment firm has ‘blown the whistle’ on ESG (environment, social and governance) ‘greenwashing’, especially on supposed climate finance.

Wall Street whistle-blowerTariq Fancy was Chief Investment Officer (CIO) for Sustainable Investing at BlackRock, managing over $9 trillion in assets. Founded in 1988, headquartered in New York City, and with the world’s largest investment portfolio, BlackRock can move financial markets.

Jomo Kwame SundaramHence, Fancy’s insider critique of corporate ESG pretensions – often associated with ‘responsible’ and ‘impact investing’ – has had a major impact. It has been seen as confirming and even elaborating on longstanding criticisms of ESG ‘greenwashing’.

Rejecting ‘stakeholder capitalism’, shareholder capitalism guru Milton Friedman long emphasized that a corporation’s primary and sole duty is to maximize profits for shareholders.

Managers are legally required to prioritize shareholder financial interests above all else. This means corporations must never sacrifice profits or their funds, however noble the cause.

Ethical or responsible actions can only be justified if they enhance ‘shareholder value’. Thus, companies can take morally desirable actions to improve their ESG ratings only if and when they enhance profitability.

As Friedman emphasized, corporate executives have strict fiduciary responsibilities under the law in ‘shareholder capitalism’ in the US, UK and elsewhere. Their managerial obligations and conduct thus limit potentially positive ESG impacts.

Prioritizing their corporate fiduciary duties above all else, they cannot enhance social or environmental benefits without maximizing returns for shareholders. By law, social, community or national ethical duties or moral values must always be secondary.

Is green financing progressive?
Corporate practices respond to changing understandings of profit-maximization in the medium to long-term. With changing national and international requirements, companies may be able to maximize long-term financial gains by investing in sustainability.

Thus, investing in green transitions – e.g., renewable energy or re-afforestation – can become profitable in the longer-term if the regulatory environment changes soon enough to sufficiently change incentives for long-term investments.

So, long-term profitability can be enhanced at the expense of short-term gains if conducive regulations, incentives and deterrents are introduced early enough.

Companies changing to more environmentally sustainable practices – like adopting solar panels, investing in re-afforestation, or other green initiatives – may thus become more profitable over the longer-term.

But ‘business-as-usual’ investments are still likely to yield more short-term gains in the near-term. And stock markets are more interested in short-term corporate performance, undermining longer-term profitability considerations. Thus, short-termist corporate governance norms deter green transitions.

Do green bonds accelerate green transitions?Larry Lohmann has shown how difficult it is to confirm that finance raised by companies issuing ‘green bonds’ is actually additional. It is often difficult to verify such bonds are funding new projects that would not have happened anyway.

Sometimes, companies had already planned to make certain investments using conventional financing. With ready access to such finance, they would not have issued green bonds if not for the pecuniary advantages of doing so.

In such circumstances, green bonds have the same results as conventional finance if not for the incentives to claim otherwise. Hence, green bonds cannot claim credit for green investments and transitions if they would have happened anyway by other means.

This raises larger questions about the supposedly transformative impact of green bonds. Companies may even obscure environmentally unsustainable or even harmful practices by bundling them together with ostensibly ‘green’ investments.

Thus, green bonds may finance certain genuinely sustainable or environment-friendly projects without changing the rest of their investment portfolios and business practices.

Stock market discipline?
Despite lacking strong supportive empirical evidence, advocates claim ESG-compliant stocks outperform non-compliant ones in the share market. Similarly, they claim such compliance improves overall ESG indicators and contributes significantly to achieving the Sustainable Development Goals.

But there is no strong evidence that ESG-inspired stock market or corporate strategies have improved the environment, society or governance. After all, shareholders and companies prioritize short-term financial goals over longer-term considerations, including ESG and long-term profitability.

Divestment of shares in companies which are not ESG-compliant may only have limited impact if others buy non-compliant stocks, especially after their prices have fallen.

Also, even if some investors sell their shares in companies which are not ESG-compliant, it is unlikely the stock market will ‘green’ corporate behaviour more broadly.

Such stocks are mere drops in the ocean of wealth and finance, and one cannot realistically expect the tail to ‘wag the dog’. In 2021, the world economy had $360 trillion worth of wealth, with nearly $6 trillion in private equity.

Disciplining companies
Divestment means selling shares and thus losing ‘voice’ in company governance. But for shareholder engagement, it is necessary to retain stock ownership. Holding stock gives shareholders voice which can be used to try to pressure companies to be more ESG-compliant.

Without financially damaging effects for its reputation and share price, a company would not be compelled to become more ESG-compliant. Only significant stock price collapses – following massive share divestment due to reputational damage – are likely to motivate companies to become ESG compliant.

Undoubtedly, adverse publicity for particular companies hurts their stock prices, at least temporarily. And this may force companies to improve their behaviour. But such success implies a ‘name and shame’ approach – not ESG-compliance – can be effective.

And while some share prices may be more sensitive to adverse ESG publicity in some societies, there is no strong evidence this is true everywhere. Nor is there any strong evidence that systematic ESG reporting has generated desirable outcomes in most societies.

Divestment may not strongly affect company profitability or share prices. But actions such as consumer boycotts directly influence company revenue and financial performance. This may prompt strong corporate responses due to their impacts on companies’ ‘bottom lines’.

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Beware Climate Finance Charade — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Oct 11 (IPS) – Finance has increased, not reduced, greenhouse gas (GHG) emissions. Meanwhile, funding for mitigation, and especially adaptation, is grossly inadequate, with little for climate losses and damages.

Global warming accelerating
Rich countries are mainly responsible for the fast-worsening global warming as developing nations suffer more of its adverse effects. Worse, they are much more financially constrained, e.g., due to the higher costs of and poorer access to credit.

Jomo Kwame SundaramBefore the 2009 UN Climate Change Conference of Parties (CoP) in Copenhagen, rich countries promised to provide $100 billion yearly to developing nations until 2020 for climate finance, after which such assistance would increase.

But the Inter-Governmental Panel on Climate Change (IPCC) found their promise well short of needs. It also estimated total climate finance – from both public and private sources – at only $640 billion, i.e., averaging about $60 billion yearly.

Adaptation costs until 2030 have been assessed at up to $411 billion annually, with most yearly estimates exceeding $100 billion! But even this does not cover financial losses and damages due to climate change, which have barely been funded.

Climate finance pathetic
Official estimates claim about $80 billion was mobilized in 2020, the most ever, but still well short of rich nations’ commitments. A significant share came from private finance plus a third via multilateral financial institutions. But these estimates – especially for private finance – are widely seen as grossly exaggerated.

Commitments by rich countries to the IMF’s Resilience and Sustainability Trust Fund – to provide climate finance to a few poor countries under very restrictive conditions – have been modest despite much fanfare and rhetoric.

Bilateral official transfers during 2013-19 were under $18 billion annually, averaging between a quarter to a third of all climate finance delivered. Rich country governments have since spent several trillions on the pandemic and the Ukraine war!

Rich nations’ climate finance proposals are mainly about more loans, not grants. But more government borrowings have already worsened the climate and debt crises. Clearly, more developing country debt cannot be both problem and solution.

More concessional climate finance would not cost much as rich nations have about $400 billion of special drawing rights (SDRs) from the International Monetary Fund (IMF) – virtually ‘free’ foreign exchange reserve assets – which they hardly use.

Fossil fuels still subsidized
Very limited non-concessional climate finance contrasts sharply with rich nations’ fossil fuel subsidies. Their governments have long enabled such energy generation while insisting poor countries cut GHG emissions.

The actual extent of such subsidies has been obscured by prevailing discourses, especially over statistics. The Organization for Economic Cooperation and Development (OECD) and International Energy Agency (IEA) measure of government support for fossil fuels only considers direct budget transfers and subsidies other than tax breaks.

The duo found 52 developed and ‘emerging’ country governments accounted for 90% of world fossil fuel energy supply. Their total subsidies averaged $555 billion annually during 2017-19, i.e., before the pandemic.

But this greatly understates actual government fossil fuel subsidies. IMF research recognizing implicit subsidies – including environmental costs and lost consumption taxes – finds much higher subsidies than thus acknowledged.

The IMF study estimated world fossil fuel subsidies in 2020 at $5.9 trillion – more than ten times the OECD-IEA estimate, with implicit subsidies accounting for 92% of the total!

China provided the most, followed by the US, Russia, India and the European Union. Total US fossil fuel subsidies in 2020 – mostly implicit – came to $662 billion, while the Biden administration’s climate finance commitment came to only $5.7 billion!

More recent government interventions continue to skew market incentives to favour – rather than limit – fossil fuels. Hence, private finance has mainly gone to fossil fuel energy investments, despite much rhetoric about greening finance.

Private finance problem, not solution
Better data on fuel finance – by source, destination and power generation capacity – are essential. But lack of reliable, comprehensive and transparent data – on cross-border, particularly private financial flows for fossil fuels – prevents better analysis and policy.

The UK hosts of CoP26 in Glasgow in late 2021 pledged to end coal burning for energy generation. But less than half a year later, European and other countries sanctioning Russian gas exports were pursuing the opposite.

Most foreign financing for coal comes from rich nations’ commercial banks and institutional investors. Fourteen of the top 15 lenders to new coal investments worldwide were from wealthy economies.

The main institutional investors in fossil fuel company stocks and bonds are also from such nations, with the top three – BlackRock, Vanguard, and Capital Group – all US-based.

GHG emissions by major transnational corporations – including supposedly green companies – are considerable because of such fossil fuel energy. Emissions generated by these investments exceeded all others.

Address policy reversals
The Ukraine war has been used by many governments to abandon their already modest and inadequate climate promises. And instead of using the oil price spike to accelerate the transition away from fossil fuels, many governments have been subsidizing domestic energy prices.

Hence, the Global Green New Deal (GGND) – proposed by the UN during the 2008 global financial crisis (GFC) – is even more relevant now. The GGND urged a strong, green, equitable and inclusive economic recovery after the GFC.

Taking account of what has happened in the interim is also essential to achieve the needed ‘big push’ for renewable energy to create the conditions for sustainable development for all.

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Debt-Pushing as Financial Inclusion — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Oct 04 (IPS) – Ajay Banga was anointed World Bank president for promoting financial inclusion. Thanks to its success and interest rate hikes, more poor people are drowning in debt as consumer prices rise.

Meritocratic leadership?

Since the International Monetary Fund (IMF) and World Bank were set up by the United Nations Conference at Bretton Woods in 1944, the US president’s nominee has been automatically appointed Bank president. By convention then, the Bank president is a US citizen, while the IMF head is European.

Jomo Kwame Sundaram

The official IMF historian noted US authorities believed “the Bank would have to be headed by a US citizen in order to win the confidence of the banking community, and that it would be impracticable to appoint US citizens to head both the Bank and the Fund.”

Banga went to the World Bank in Washington, DC from the business world. He had spent his entire career in transnational corporations, moving from Nestlé in India to Citigroup’s microfinance division, and then Mastercard. In 2020, he became chair of the International Chamber of Commerce, founded in 1919.

For over a decade, he was chief executive officer (CEO) of Mastercard, which he denies is a credit card company. He gave shareholders a cumulative total return of 1,581% – almost five times the S&P500 market average! By 2020, it was the 21st most valuable corporation in the world, having risen from 256th when he took over.

Like most US appointees to head the Bank, Banga had no experience or earlier interest in development finance. Now, he is obliged to pursue US interests and agendas. He has already announced he will rely on the private sector for funds and ideas.

South African laboratory

Long the world’s most unequal society, South Africa (SA) became a laboratory for financial experimentation from the 1990s, from commercial microcredit to mass collateralization of welfare payments.

Leading microcredit authority Milford Bateman has shown how the SA microcredit business enriched a small white elite while economically dividing and undermining poor urban and rural black communities.

In the 1990s, male senior managers of SA financial institutions abused ‘seniority’ for their own private short-term financial gains to defraud customers, shareholders, governments and the general public.

Usurious debt promotionBateman, Patrick Bond, Lena Lavinas and Erin Torkelson have shown how Banga’s SA ‘financial inclusion’ initiative involved ‘predatory financing’. As CEO, he mobilized MasterCard to promote and profit from it.

Over a decade ago, Banga pioneered a major ‘fintech’ (financial technology) partnership with Net1, a data services firm in SA. Later, in 2016, the World Bank Group’s International Finance Corporation (IFC) bought 22%, its single largest share.

The IFC bought into Net1 to extend ‘tested’ financial services to the poor. Although Net1 was already known to be very problematic, the IFC was keen to promote private fintech platforms regardless of their consequences for the poor.

Of SA’s 60 million people, over 40% receive small monthly grants for unemployment relief, child support, retirement pensions and disability. With Mastercard’s ‘cashless’ electronic payment services appreciated for convenience and efficiency, Banga admitted, “If these guys use their card, I’m going to make money”.

Once card expenses exceed grant income, Net1 charges ‘service fees’, including a usurious 5% monthly interest rate! By 2015-17, it was earning more from financial inclusion than from distributing government grants. Thus, Net1’s shadow banking system remained unregulated.

Net1 lost its contract after bad publicity about its actual impact on the SA poor. Later, it was found to be sabotaging the state-owned post office (PO) asked to take over. Long under-funded and struggling to manage, the SAPO may soon lose the contract to another private fintech provider.

Welfare payments as debt collateral

While its digital payment services delivered monthly payments to all welfare recipients, these transfer streams effectively guaranteed credit extended. Thus, despite usurious credit terms, it faced little risk of default.

This de-risking strategy turned government welfare benefit payment commitments into debt collateral. Thus, regular cash transfers monetizing poverty relief and mitigating deprivation also served to service usurious debt.

Despite dubious evidence, World Bank staff claimed billions would escape poverty through greater access to digitalized microfinance services – small loans, savings opportunities, money transfer payments and technology, debit orders, etc. – run by ‘profit-seeking’ fintech platforms.

Much better access to such services had been enabled over a decade earlier by endorsing and celebrating microfinance and increasingly widespread credit/debit card access. But even ex-cheerleaders now agree microfinance has not reduced poverty.

Previously celebrated early fintech platforms have become quite problematic, and are now widely seen as exploitive of users. Even the Paypal CEO admits financial inclusion is essentially a buzzword for incorporating more into the financial system.

Innovation for exploitation

Two ostensible development programmes – cash transfers and financial inclusion – were very profitably integrated by Banga in SA. The public-private partnership between the government cash transfer programme and the private fintech payment-cum-credit services has become a usurious techno-financial monopoly.

Cash transfers and other services are increasingly delivered using financial inclusion technologies. With such technologies disbursing cash transfers, government-funded poverty relief programmes have been used to expand such credit facilities.

This link has enabled offering credit to cash transferees. As Erin Torkelson has shown, the Net1’s involvement in the SA cash transfer programme enabled a financial monopoly based on proprietary technology.

Government-funded cash transfers have thus provide security for more borrowing by the poor, virtually eliminating risk for the creditor. As all risk is borne by the borrowers, technologies bundling cash transfer payments with easy credit facilities ensure they cannot default.

Such bundling ensured the poor could not default, while encouraging recipients to borrow. By making the monthly government grants serve as collateral for credit, the programmes have ensured nearly risk-free profit for usurious creditors while deepening the indebtedness of the poor.

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Dont Count on PPP Solutions — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Sep 27 (IPS) – In recent years, public-private partnerships (PPPs) have spread rapidly. While usually profitable for the private partners, PPPs have generally not served the longer-term public interest.

PPPs as miracle all-purpose solution

As Eurodad has shown, PPP financing has grown in recent years, particularly in the Sustainable Development Goals (SDGs) funding discourses. Adopted by the UN in September 2015, the SDGs endorsed PPP financing.

Jomo Kwame Sundaram

Earlier, the mid-2015 Third UN Conference on Financing for Development in Addis Ababa had failed to ensure adequate financing. This was mainly due to rich nations opposing a UN-led international tax cooperation initiative.

Instead, PPPs were strongly endorsed in the 2015 Addis Ababa Action Agenda. Weeks later, SDG17 referred to PPPs as ‘means of implementation’. This all sought to “encourage and promote effective public, public-private and civil society partnerships”.

PPPs have been promoted as a means to finance and deliver infrastructure, social services and, increasingly, climate-related projects. Advocates claimed PPPs would also help overcome other problems besides funding. PPPs, they claimed, would help improve project selection, planning, implementation and maintenance.

PPP promotion

Some advocates even claim only the private sector can deliver high-quality investment and efficiency in infrastructure and social service delivery. Private financing reduces budget-constrained governments’ need to raise funds upfront to finance, develop and manage projects.

Increased private financing supposedly also overcomes public sector incapacity to deliver high-quality infrastructure and public services. Undoubtedly, many government capacities have been diminished by decades of structural adjustment, austerity and less public finance.

This has been worsened by rich countries’ unmet commitments to contribute 0.7% of national income as official development assistance (ODA) on concessional terms. The global North has also been unwilling to effectively stem illicit financial outflows, e.g., due to tax dodging.

PPP promotion has involved many means, media and institutions, including ‘donor’ agencies, multilateral development banks (MDBs), UN agencies, international consultants, transnational accounting firms, and the World Economic Forum (WEF).

The World Bank has long promoted private financial investments in development, as well as ‘blended finance’ and PPPs more recently. In 2022, the influential WEF even proclaimed PPPs as essential for pandemic recovery.

Promoting private finance

Such promotion of private finance has implications far beyond the actually modest amount of funds raised through ‘blended finance’ and PPPs. Almost every project so funded is touted as proof that private finance should be privileged, including by guaranteeing returns using public finance.

The World Bank and other MDBs are devoting considerable effort to advise governments on the use of PPPs. By contrast, they have not put comparable efforts into improving the quality and effectiveness of publicly financed infrastructure and social services.

Over the years, the World Bank Group has produced different tools – including model language for PPP contracts, which favour private sector interests – often to the detriment of the public partner, ultimately governments in need of financing.

Regional development banks – such as the Asian Development Bank, the African Development Bank and the Inter-American Development Bank – have strategic frameworks, networks and dedicated offices to support countries implementing PPPs.

National PPP promotion

PPP advocacy has led to changes in laws, regulatory frameworks and policy environments at international, national and local levels. Developing countries have also started including PPPs – to scale up infrastructure and public service provision – in national development plans.

Many developing countries have enacted laws enabling PPPs and set up ‘PPP Units’ to implement PPP projects. The World Bank, International Monetary Fund (IMF) and regional development banks work closely with private partners to provide policy guidance advising governments on how to best enable PPPs.

All this has transformed policy formulation for public service provision to attract private investors – an agenda Daniela Gabor dubs the ‘Wall Street Consensus’. This implies “an elaborate effort to reorganize development interventions around partnerships with global finance”.

PPPs have not delivered

But actual experiences have not confirmed this favourable impression promoted by PPP advocates. Instead, PPPs have become a major cause for concern. Reliable data on international PPP trends are hard to find. Also, different PPP definitions and terminology have confused reporting.

The World Bank’s Private Participation in Infrastructure Projects Database reports on economic infrastructure – such as for energy, transport, water and sewerage – in 137 low- and middle-income countries.

The Covid-19 pandemic undoubtedly disrupted PPP planning, preparation and procurement. But even the World Bank admits that delays and cancellations were not only due to Covid-19 as the pandemic exposed projects already in trouble for other reasons.

Nonetheless, PPPs’ financial impacts to date have been small, as the public sector continues to dominate. But little private investment – including PPPs – goes to low-income countries. Most such projects are concentrated in a few countries.

PPPs tend to be found in countries with large and developed markets allowing faster cost recovery and more secure revenues. This implies market ‘cherry-picking’ – a selection bias – with private investments going to more affluent urban areas rather than to the needy.

The major setbacks to both the SDGs and climate progress in the last decade are not only due to financing. But they are more than enough to underscore that recent reliance on blended finance and PPPs has worsened, rather than helped the situation. The empire of private finance has no clothes!

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Dangerous Scramble for Renewable Energy Resources — Global Issues

  • Opinion by Jomo Kwame Sundaram (kuala lumpur, malaysia)
  • Inter Press Service

KUALA LUMPUR, Malaysia, Sep 20 (IPS) – The growing and changing material requirements for new technologies have triggered natural resource scrambles for strategic minerals, generating dangerous rivalries fought out in the global South.

Scrambles for resources
Jayati Ghosh, Shouvik Chakraborty and Debamanyu Das have analyzed these new scrambles for mineral resources in developing countries triggered by major new innovations since the electronics boom.

Jomo Kwame SundaramNatural resources here refer to naturally occurring solid, liquid or gaseous materials in or on the Earth’s crust. When extracted and exported commercially, they are considered primary commodities.

All technologies – both peaceful and military – have specific material requirements. For example, energy transitions need particular minerals for renewable energy generation, transmission and storage.

New technologies, with specific material requirements, are changing the nature of rivalries – among states, corporations and individuals – seeking to control these mineral resources.

Feasible mass use of renewable energy requires extracting needed natural resources, which incurs costs and has adverse consequences. Commercial feasibility implies profitable extraction of desired minerals.

Thus, addressing global warming by generating more energy from renewable sources – while desirable and necessary – in turn generates new problems and challenges which need to be addressed.

Rare earths
Despite their name, rare earth elements (REE) may not actually be scarce. But most REE are difficult and costly to extract as they are usually found together with other minerals. Unsurprisingly, REE demand and supplies have changed greatly in recent years.

For the time being, demand for at least 17 ‘rare earth’ minerals is expected to grow. The inter-governmental International Energy Agency (IEA) projects supplies of some critical minerals will increase at least 30-fold over the next two decades.

Extracting lithium and other such minerals also has very problematic environmental implications. Mined all over the world, REE are usually processed and separated by several stages of often complex and costly extraction and chemical processing, with many harmful to the environment.

China currently leads the world in rare earth production, with over a third of the world’s known REE reserves. While Chinese companies dominate some supplies, China’s rare earth imports currently exceed its exports.

Nevertheless, China dominates ‘downstream’ processing of REEs. Chinese companies control over 85 per cent of the costly REE processing processes. Unsurprisingly, China also accounts for over 70% of the world’s photovoltaic solar panel production and over 90% of its silicon wafer manufacturing.

Lithium
Lithium is one of the minerals over which control has been hotly contested. Lithium is particularly needed for processes to replace mechanical energy generation using fossil fuels. It is also needed for many industrial, office and household appliances, including rechargeable batteries, electric vehicles and electronic goods.

Batteries – including rechargeable lithium-ion electrical grid storage devices – account for three-quarters of current supply. The IEA’s Sustainable Development Scenario expects demand to rise 42-fold in less than two decades!

In 2021, there were almost 89 million tons of known lithium resources, mainly in developing countries. For decades, lithium mining has been very controversial, largely due to increasingly better known adverse environmental impacts.

As pure lithium is very chemically reactive, it is often mined as ore, as in West Australia. It is also obtained from salt flats and brine pools in the southern cone of South America, particularly in Bolivia, Chile and Argentina.

For decades, China has led the world in lithium mining. Australia and the US were second and third by the start of the pandemic, with 12% and 9% respectively. While Australia is the world’s largest exporter, lithium is mainly and increasingly mined in developing countries by a relatively few companies.

Undermining communities
REE mining has adversely impacted various ecosystems and communities. Mineral deposits may have to be raised from subterranean sources, or ‘concentrated’ by evaporation.

Such techniques typically deplete, contaminate and otherwise reduce access to fresh water. Local water systems – used by people, animals, including livestock, and plants, including crops – are often badly compromised as a consequence.

Extractive mining and related operations have worsened such environments. But mining companies can often get their way with impunity, often intimidating communities with the help of local politicians, government officials and police.

Such ecological damage has devastated forest and vegetation cover, caused biodiversity loss, and compromised hydrological systems. Thus, extractive operations often involve abuses, with adverse effects for local communities.

Economic gains to local communities are typically modest compared to mining’s adverse consequences. Benefits largely accrue to local ‘enablers’ while costs vary within communities with circumstances.

The authors also urge majority government ownership of mineral extracting and processing companies. This will reduce foreign reliance and meddling, including by big powers such as the United States and China.

Government transparency and accountability, including independent audits, can help ensure less adverse consequences and fairer compensation for all involved.

This also prevents elite capture, abuse and deployment of mineral rents in their own interest. Avoiding such abuses is necessary to ensure resource rents actually advance sustainable development, as Bolivia is striving to do.

Sustainability undermined?
New frontiers for mineral extraction are emerging, especially as innovation creates new extraction and processing possibilities. This implies a vicious circle as global warming becomes both cause and effect of such mineral extraction.

Mining practices threaten ecological fragility and vulnerability. Similarly, polar and seabed exploration and mining may well trigger disastrous environmental consequences, including mass extinctions of vulnerable polar and marine life.

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