2021: Year of Living Dangerously?

Yves here. The warning, “The Year of Living Dangerously,” no doubt is far more vivid for Jomo Kwame Sundaram than for most readers of this site. Sundaram no doubt remembers the news reports of the rising instability and coup in Indonesia in 1965, by virtue of its close proximity and therefore importance to Malaysia.

The 50,000 foot version is that Sukharno, who headed the Indonesian independence movement, led the country from 1945 until 1967, when he was removed from power and put under house arrest, dying in 1970. Sukharno had started moving in the late 1950s to autocratic rule which he called “guided democracy,” including reconstituting Parliament with half the seats appointed by the President, incarcerating opponents, and shutting newspapers critical of the regime. One impetus (but far from the only one) was a coup attempt in 1958 that had CIA backing; JFK tried making amends in 1963 with arms and aid in an effort to counter generous support from the USSR.

Per Wikipedia, a very much shortened version of what happened next:

Sukarno continued to consolidate his control. He was made president for life by the MPRS in 1963….

Despite these appearances of unchallenged control, Sukarno’s guided democracy stood on fragile grounds due to the inherent conflict between its two underlying support pillars, the military and the communists. The military, nationalists, and the Islamic groups were shocked by the rapid growth of the communist party under Sukarno’s protection. They feared an imminent establishment of a communist state in Indonesia. By 1965, the PKI had three million members and were particularly strong in Central Java and Bali. PKI had become the strongest party in Indonesia….

Tensions between the military and communists increased in April 1965, when PKI chairman Aidit called for the formation of a “fifth armed force” consisting of armed peasants and labour. Sukarno approved this idea and publicly called for the immediate formation of such a force on 17 May 1965. However, Army Chief Ahmad Yani and Defence Minister Nasution procrastinated in implementing this idea, as this was tantamount to allowing the PKI to establish its own armed forces…On his independence day speech of 17 August 1965, Sukarno declared his intention to commit Indonesia to an anti-imperialist alliance with China and other communist regimes and warned the Army not to interfere. He also stated his support for the establishment of a “fifth force” of armed peasants and labour….

While Sukarno devoted his energy to domestic and international politics, the economy of Indonesia was neglected and deteriorated rapidly. The government printed money to finance its military expenditures, resulting in hyperinflation exceeding 600% per annum in 1964–1965. Smuggling and the collapse of export plantation sectors deprived the government of much-needed foreign exchange income. Consequently, the government was unable to service massive foreign debts it had accumulated from both Western and Communist bloc countries. Most of the government budget was spent on the military, resulting in deterioration of infrastructures such as roads, railways, ports, and other public facilities. Deteriorating transportation infrastructure and poor harvests caused food shortages in many places. The small industrial sector languished and only produced at 20% capacity due to lack of investment.

The Wikipedia entry continues to describe in detail how assassinations of six of Indonesia’s top generals on October 1, 1965 ushered in open conflict between the military and the communists, with the military launching a purge agains communists and the left. At least a half million died and as many as 1.5 million were jailed as the revolt progressed.

The reason for the long backstory is the reference to “the year of living dangerously,” from vivere pericolosamente, which the multi-lingual Sukarno used at the title of his 1964 Independence Day speech. I saw the Peter Weir movie of the same name, based on the Christopher Koch novel, when it first appeared in theaters in 1982 and again in the last year. The two reasons for seeing it are Linda Hunt’s Oscar-winning performance of Chinese-Australian journalist Billy Kwan and the sense it gives of what Jakarta was like in 1965 and 1966, particularly the desperate poverty and the heavy hand of the military. People who live in advanced economies read about but rarely encounter true “third world” or developing economies; to the extent most Westerners go there, they visit the prettified tourist spots, stay in nice or at least OK lodging and have the locals putting on their best faces. By contrast, in the film The Year of Living Dangerously, even the relatively pampered expats frequent shabby bars and offices, but you can still see how much better that is than the nearby slums where starvation and disease were rising.

In other words, Sundaram is warning that a rise in poverty can produce big changes in political regimes. His concern is what happens next to lower and middle income countries. Will they again be subjected to the IMF austerity hairshirt, or will foreign institutions recognize that that approach is not only too often a bust, but also particularly dangerous now?

By Jomo Kwame Sundaram, a former economics professor, who was United Nations Assistant Secretary-General for Economic Development, and received the Wassily Leontief Prize for Advancing the Frontiers of Economic Thought. Originally published at his website

Goodbye 2020, but unfortunately, not good riddance, as we all have to live with its legacy. It has been a disastrous year for much of the world for various reasons, Elizabeth II’s annus horribilis. The crisis has exposed previously unacknowledged realities, including frailties and vulnerabilities.

For many countries, the tragedy is all the greater as some leaders had set national aspirations for 2020, suggested by the number’s association with perfect vision. But their failures are no reason to reject national projects. As Helen Keller, the deaf and blind author activist, noted a century ago, “The only thing worse than being blind is having sight, but no vision.”

After JFK’s assassination in November 1963 ended US opposition to Western intervention in Indonesia, President Sukarno warned his nation in August 1964 that it would be ‘living dangerously’, vivere pericoloso, in the year ahead. A year later, a bloody Western-backed military coup had deposed him, taking up to a million lives, with many more ruined.

Further Economic Slowdown

Lacklustre economic growth after the 2009 Great Recession has been worsened in recent years by growing international tensions largely associated with US-China relations, Brexit and slowing US and world growth although stock markets continued to bubble.

Economic growth has slowed unevenly, with Asia slowing less than Europe, Latin America and even the US. With effective early pre-emptive measures, much of East Asia began to recover before mid-2020. Meanwhile, most other economies slowed, although some picked up later, thanks to successful initial contagion containment as well as adequate relief and recovery measures.

International trade has been picking up rapidly, accelerating rebounds in heavily trading economies. Commodity prices, except for fossil fuels, have largely recovered, perhaps due to major financial investments by investment banks and hedge funds, buoying stock and commodity prices since late March.

Very low US, EU and Japanese interest rates have thus sustained asset market bubbles. Meanwhile, new arbitrage opportunities, largely involving emerging market economies, have strengthened developing countries’ foreign reserves and exchange rates, thus mitigating external debt burdens.

Unbiased Virus, Biased Responses

The pandemic worsened poverty, hunger and vulnerability by squeezing jobs, livelihoods and earnings of hundreds of millions of families. As economic activities resumed, production, distribution and supply barriers, constrained fiscal means, reduced demand, debt, unemployment, as well as reduced and uncertain incomes and spending have become more pronounced.

While many governments initially provided some relief, these have generally been more modest and temporary in developing countries. Past budget deficits, debt, tax incentives and the need for good credit ratings have all been invoked to justify spending cuts and fiscal consolidation.

Meanwhile, pandemic relief funds have been abused by corporations, typically at the expense of less influential victims with more modest, vulnerable and precarious livelihoods. Many of the super-rich got even richer, with the US’s 651 billionaires making over US$1 trillion.

On the pretext of saving or making jobs, existing social, including job protection has been eroded. But despite hopes raised by vaccine development, the crisis is still far from over.

Don’t Cry for Me, Says Argentina

Meanwhile, intellectual property blocks more affordable production for all. Pharmaceutical companies insist that without the exhorbitant monopoly profits from intellectual property, needed tests, treatments and vaccines would never be developed. Meanwhile, a proposed patent waiver for Covid-19 vaccines has been blocked by the US and its rich allies at the World Trade Organization (WTO).

Hence, mass vaccination is likely to be very uneven and limited by intellectual property, national strategic considerations (‘vaccine nationalism’), prohibitive costs, fiscal and other constraints. Already, the rich have booked up almost all early vaccine supplies.

The main challenge then is fiscal. Economic slowdowns have reduced tax revenues, requiring more domestic debt to increase spending needed to ensure the recessions do not become protracted depressions. Meanwhile, rising debt-to-GDP ratios and increased foreign debt have long constrained bolder fiscal efforts.

But despite the urgent need for more fiscal resources, we are told that if the richest are required to pay more taxes, even on windfall profits, they will have no incentive to ‘save’ the rest of us. Nevertheless, new wealth taxes have just passed in Argentina.

This Time Is Different

As the pandemic economic impacts began to loom large, International Monetary Fund Managing Director Kristalina Georgieva quickly offered debt relief for low-income countries on terms much better than the G20’s miserly proposal.

Unlike well-meaning debt-fixated researchers and campaigners, even new World Bank chief economist, erstwhile debt hawk Carmen Reinhart has urged, “First you worry about fighting the war, then you figure out how to pay for it”.

Nobel laureate Amartya Sen is concerned that “in the policies against the present pandemic, equity has not been a particularly noticeable priority… Instead, the focus has been on drastic control and sudden lockdowns…with little attention paid to labourers who lose their jobs or the many migrant workers, the poorest of the poor, who are kept hundreds of miles from their homes”.

COVID-19 may still bring major reforms, such as Roosevelt’s New Deal response to the Great Depression. But now, it seems likely to usher in a world where insecurity and unpredictability define the new normal. While professing to protect victims’ interests, ethno-populism blames ‘Others’ as the enemy responsible.

Still, many hope for a silver lining. Sen suggests that “a better society can emerge from the lockdowns”, as happened after World War Two, with greater welfare state provisioning and labour protections in much of the West and agrarian reforms in East Asia. But there is nothing to guarantee a better ‘new normal’.

Beyond Neoliberalism?

For many, Joe Biden’s election to succeed Trump is being celebrated as a resurgent triumph for neoliberalism, enabling the US and the rest of the world to return to ‘business as usual’.

Incredibly, another Nobel laureate Michael Spence has even called for structural adjustment programme conditionalities for countries seeking help from the Bank and Fund, repudiating the Bank’s Growth Commission he once chaired, i.e., which found that seemingly fair, often well-intentioned conditionalities had resulted in “lost decades” of development.

But thankfully, there is widespread recognition that all is not well in the world neoliberalism and Western dominance created. Incredibly, Klaus Schwab, transnational capitalism’s high priest, has conceded, “the neoliberalist … approach centers on the notion that the market knows best, that the ‘business of business is business’…Those dogmatic beliefs have proved wrong”.

Instead, he advised, “We must move on from neoliberalism in the post-COVID era”, recognising: “Free-market fundamentalism has eroded worker rights and economic security, triggered a deregulatory race to the bottom and ruinous tax competition, and enabled the emergence of massive new global monopolies. Trade, taxation, and competition rules that reflect decades of neoliberal influence will now have to be revised”.

Will We Ever Learn?

The philosopher Santayana once warned, “Those who cannot remember the past are condemned to repeat it.” Hegel had observed earlier that history repeats itself, to which Marx added, “the first time as tragedy, the second time as farce”. Nevertheless, hope remains an incurable disease that keeps us all striving and struggling.

As FDR reminded his supporters, no progressive policies will come about simply by relying on the goodwill of those in authority. Instead, they will only be enacted and implemented thanks to popular pressure from below. As Ben Phillips has put it, “the story of 2021 has not yet been written: we can write it; we can right it”.

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