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Saturday, July 31, 2021
FEDS 2021-045: A New Look at the Effects of the Interest Rate Ceiling in Arkansas
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FEDS 2021-046: The Factor Structure of Disagreement
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FEDS 2021-048: How Resilient Is Mortgage Credit Supply? Evidence from the COVID-19 Pandemic
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Friday, July 30, 2021
Who Can Save Us From Jeff Bezos and Silicon Valley’s Planetary Death Wish?
Midway through 2021, Amazon founder Jeff Bezos, the world’s richest man, realized the first part of his dream to transcend earthly constraints in a thrilling rocket ride to space.
The Federal Aviation Administration noted tartly that he could not claim the title of astronaut, because that term is reserved for persons whose activities in orbit were, among other things, beneficial to public safety. But Bezos has a much bigger vision than that. He wants to be the savior of humankind.
In November 2019, the Atlantic Monthly ran a cover story, “Jeff Bezos’s Master Plan,” featuring an image of the tycoon’s bald head as a glowing planet encircled by a halo of rings, which explains why the billionaire’s recent trip was more than a pricey joyride. The piece outlines Bezos’s conviction that in order to save the planet, humans must leave the Earth behind to colonize outer space. The CEO seeks to realize this plan through his space travel company, Blue Origin. In the future, according to Bezos, humans will escape the ravages of energy depletion and environmental catastrophe by living in meticulously crafted cylindrical space tubes with perfectly controlled climates.
Bezos’s Silicon Valley colleagues vary in their approach to solving earthly problems like climate change and inequality, but there is growing agreement that sticking around is not an option. Fellow tech entrepreneur and space enthusiast Elon Musk, for his part, favors colonizing Mars.
In the fever dreams of Silicon Valley, Planet Earth fades in significance. It becomes little more than a mere jumping-off point to the vast universe beyond where environmental constraints and human foibles need no longer apply. Science and technological advance directed by fantastically wealthy, anti-democratically inclined businessmen will override the limitations of our human nature, and nature itself, once and for all. The final conquest.
If this sounds like a delusion, that’s because it is. But if we are to avoid a march towards a very bleak future, it helps to understand the source of the fantasy. Fortunately, feminist thinkers have been on the case for decades. Their work strongly suggests that before we don our spacesuits, we had better first revise our assumptions and approach to living right here on Earth. Otherwise, we will just carry into space the very same pathologies that threatened our earthly survival in the first place.
Valerie Plumwood and Plato’s error
Feminists have been exploring the link between human culture and the environmental crisis at least since the 1960s, a time of social and economic upheaval as well as an apocalyptic sense of human-driven threats to survival. By the 1980s, the new field of “ecofeminism” had bloomed, its proponents sharing a central premise that the destruction of the environment and imbalances in human society are not only linked, but mutually reinforcing. Ecofeminists emphasized that a habit of viewing both nature and women as belonging to devalued spheres is a major culprit in environmental crises.
This burst of investigative energy was followed by a severe backlash. Charges – some of them misleading -- of essentialism, ethnocentrism, and the recreation of damaging paradigms that many feminists had tried to undo became so pervasive that by 2010, the diverse movement was routinely dismissed. But this wholesale rejection led to the dismissal of much valuable work that could help inform current thinking.
Case in point: Valerie Plumwood’s Feminism and the Mastery of Nature, published in 1993. This illuminating work details how western rationality evolved with a blind spot, namely, a refusal to acknowledge human dependency on nature which was accompanied by a tendency to degrade the position of women.
Plumwood points the finger at Plato, whose metaphor of cosmology outlined a male-female dualism in which rational masculine form (cosmos) rules over irrational feminine matter (chaos). She notes that his Republic emphasized dualism in the Allegory of the Cave, where “nature within” is rejected in favor of a transcendent cultural identity separated from a lower “feminine realm.” The realm of nature that Plato wants to reject is described as “the primal matrix of being, of the woman and the mother, of the body and the senses, of the whole order of physicality and changeability, and finally of the earth itself.”
Plato turns common sense upside down. He suggests that the lifeless, abstract world of forms gives eternal life, but the living, embodied realm of nature is a tomb. Plumwood sees this assumption as leading to a pathological stance in which the rational self can only develop if we deny the value of life, giving preference to values of war, militarism, and means of production dependent on oppression. And the rational self, of course, is a male subject.
In Plumwood’s view, the implications of the Platonic view, extended in the West through Christian rationality, the Enlightenment, and the rise of capitalism, are both profound and disastrous. Our human identity becomes alienated from nature as we increasingly view ourselves as the external controllers of the natural world. In this scheme, everything and everyone associated with nature loses intrinsic value and becomes the instrument for the master subject’s existence. Ecological factors are reduced to “externalities,” and little account is taken of natural limitations.
It doesn’t take much to see how the assumptions Plumwood describes inform the visions of Silicon Valley elites, who, in addition to their quest to ascend to the heavens, also seek to extend human life indefinitely or, in the words of Google founders Sergey Brin and Larry Page, “solve death.”[1] Their view of the human future is a spaceship blasting off from decaying earthly existence – a movement towards a total break with nature.
Bezos’s space tube is haunted by fear -- the human dread of death coupled with a deep anxiety about a universe in which humans do not have ultimate control. This fear launches with a finger on the self-destruct button, ending either with the death of the other on whom the master subject relies or with the abandonment of mastery and failure to adapt in life-affirming ways.
So here we are, with economies and political systems increasingly driven by reckless, greedy man-children who would rather play at being captain of the Starship Enterprise than tackle earthly problems, starting with their own transformation.
Dorothy Dinnerstein and Toxic Gender Arrangements
The work of feminist psychologist Dorothy Dinnerstein helps explain another way in which our western assumptions and approach to life lead us astray. Her 1976 book, The Mermaid and the Minotaur, takes dualism by the horns, arguing that seemingly “natural” gender arrangements have not only been damaging to human potential but greatly destructive to the environment. Dinnerstein goes back to the earliest human past and looks at the evolutionary and biological background of human social development.
Dinnerstein traces the dualistic pattern of male-as-transcendent and the female-as-nurturer to models of childrearing in which the care of infants and early childcare is relegated primarily to females. This model, she points out, has its origins in the human evolutionary-biological situation, as it is the mother who gets pregnant and breastfeeds the helpless infant. But patriarchal cultures make gender arrangements determinative where they should not be. Dinnerstein argues that patriarchies leverage aspects of human evolution and biology—now rendered far less determinative by developments like birth control and reduced infant mortality—to designate women as primary caregivers and secondary human beings.
What we end up with is a foundation for patriarchy that disconnects males from processes of caregiving and nurturing, leading not only to a variety of social problems but a hostile stance toward all things classed as feminine -- and to nature itself. Patriarchal cultures breed adults who will revenge themselves on the mother for her early omnipotence and act out upon her surrogate, nature, in increasingly technically proficient expressions of infantile aggression.
Dinnerstein’s warnings play out in trends of privatization and renewed calls for traditional family values which reinstate ancient sexual arrangements and reproduce what is best for the western male subject—i.e. the affluent white man—through deregulated markets and hierarchies of power that exclude and subordinate women and non-whites.
The view that pathologies become inscribed into human culture when males do not fully embody nurturing roles helps explain why, despite multiple waves of feminism, gendered household labor remains unpaid, and market activities like childcare and home health care are disproportionately shouldered by women, nonwhites, and immigrants. The role of the family within the American neoliberal context is constructed to reaffirm unhealthy patriarchal family norms.
Meanwhile, the full participation of women in all aspects of society has not been achieved. Despite the fact that families rely on the income of both parents and require their caregiving investments, American workplaces remain hostile to parental leave in general, and paternal childcare in particular. Men are still commonly considered less naturally equipped to care for young children, even though the rise of stay-at-home dads, who have doubled in number since 1989, proves that men have plenty of caregiving capacity and many feel fulfillment and pride in using it.
Dinnerstein’s work suggests that a child born to see humans of all genders robustly participating in its development has the potential to grow into an adult more sensitive to the conditions under which we exist on the earth, better able to recognize and accommodate denied relationships of dependency and mutuality, and more likely to acknowledge our debt to others. It underscores that modifying sexual arrangements is necessary for creating an egalitarian culture beyond dualism and to finding a mutual, ethical basis for an enriching coexistence with others -- and with the Earth itself.
Plumwood and Dinnerstein’s inquiries into the illusions of mastery reveal the conditions that keep us from mastering ourselves and allow us to become seduced by fantasies of escape from reality that may actually hasten our demise. And they help explain why legal, institutional, economic barriers –and especially mental and psychological barriers -- are so difficult to surmount.
The good news is that humans are the only creatures we know of that can actually guide our own evolution. If confronted, our mindsets and our social arrangements are mutable. The western subject could potentially embark on a long-overdue homecoming to Earth.
Note
[1] See Gabbatt, Adam. “Is Silicon Valley's quest for immortality a fate worse than death?” The Guardian. https://www.theguardian.com/technology/2019/feb/22/silicon-valley-immortality-blood-infusion-gene-therapy. Accessed Dec. 20, 2019.
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CIGI Celebrates 20 Years of Research and Expert Analysis
July 30, 2021, marks the twentieth anniversary of the Centre for International Governance Innovation (CIGI), and the organization is thrilled to be celebrating two decades of contributing research and expert analysis to global policy making.
CIGI’s initial focus on international relations and the global economy, which led to its role in laying the groundwork for the creation of the G20 Leaders’ Summit, has since evolved to addressing issues at the intersection of technology and global governance: data, artificial intelligence, cybersecurity and digital platform regulation.
In celebration of our anniversary, leading experts and government officials who have been involved with CIGI over the years shared their happy birthday messages. You can watch the messages in two compilations (Video 1, Video 2) or view the full-length well-wishes individually in a playlist we’ve collected on YouTube.
Canada’s twenty-third prime minister, the Right Honourable Justin Trudeau, also generously took the time to acknowledge the organization’s twentieth anniversary.
Of course, anniversaries are also a time of reflection, and CIGI President Rohinton P. Medhora reflected on the organization’s role in governance-making in this post, as well as in the following video alongside co-founder and board chair Jim Balsillie and others.
CIGI: Reflections on Our Twentieth Birthday
When the Centre for International Governance Innovation — CIGI — was created 20 years ago, the world had not flattened, and history had not quite ended. There was a recognition that post-World War II arrangements were fraying, that the world no longer centred on the Western alliance, and that “new” issues like climate change and public health were not served well by the global governance system. The global rules of the game had provided Canada access to every club that mattered (and then some), and underpinned a relatively unknown but highly innovative company founded in a small city in a small country, developing what would become an iconic, world-leading brand called BlackBerry. But the rules were imperfect and incomplete.
The Asian financial crisis of 1997–1998 brought the term contagion, stolen from the health lexicon, into the global economic discourse. It also demonstrated the importance of adding seats at the discussion table to include rising Asia, for it became apparent that solutions imposed by outsiders alone were no longer tenable, if they ever had been. Thus was born the Group of Twenty (G20) at the finance ministers and central bank heads level, and the germ of the idea of its elevation to country leaders.
In its formative years, CIGI’s principal broad preoccupation was to address gaps in global governance. In pursuing this remit, many topics were covered via a multitude of activities. In keeping with the ethos of a think tank, as much attention was paid — and still is — to communication and impact as to the production of sound research. But the concept of a G20 at the leaders’ level was the coalescing force that gave the young institution a purpose and an identity.
When the G20 was finally created in 2008, one would be hard pressed to claim it was because of the work of CIGI and others who had taken to the idea. It was the financial crisis of 2007/8 that galvanized action. But the analysis on key questions around structure, scope and operation had been addressed, at least in theory, and the concept had been socialized in policy circles. By the time the first summit took place, in Washington, DC, in November 2008, the change seemed more evolutionary than revolutionary.
Arguably, the work of the G20 — and of CIGI — has only just begun. Having dealt with the immediate aftermath of that crisis, and an initial burst in long-term thinking through the establishment of the Financial Stability Board (the Forum’s successor), the G20 has been in drift for several years. The lack of a permanent secretariat contributed, as did the inevitable inertia that arrives when a crisis has passed and the roll-up-your-sleeves work of addressing daunting problems of old and new vintage takes over. This drift, coupled with the emergence of a new geo-economics around digital governance, resulted in a stasis that is all too apparent as we deal with the next frontier in global governance — the norms, processes and institutions required to deal with the data-driven digital era, and transformative technologies more broadly.
To illustrate the interplay between the urgent and the important in world affairs, consider the COVID-19 pandemic.
Although we are still in the midst of fighting a first phase of the COVID-19 crisis, it is already clear that its impacts will be manifold and long-lasting. So far, analogies have been drawn with 9/11, the influenza epidemic of a century ago, the financial crisis of 2007/8, and the invention of the internet and the smartphone, as examples of game-changing episodes. No doubt, the current crisis will have some features in common with previous analogues, and some that are unique to it. We are still in the realm of informed speculation. Even so, it is not too early to reflect on what the enduring impacts of the crisis will be.
Even limiting the list to CIGI’s current preoccupations around international cooperation and digital and data governance, there are implications in many dimensions, for:
- faith in public action and in science;
- the civil liberties-security-privacy trade-off;
- social cohesion;
- vaccines, intellectual property and the public good;
- global cooperation in the shadow of US-China relations with each other and with the rest of the world; and
- globalization itself.
Governance is about balances. Balancing the elegance of technically correct solutions (“evidence”) with the expedients of navigating a political process to put them, or some version of them, into effect. Balancing the will of the majority with the rights and interests of minorities. Balancing pure wealth creation with its distribution and with non-material considerations like values. Balancing the short term with the medium term and the long term. Balancing efficiency in decision making with voice and inclusion.
As CIGI looks ahead to its next 20 years, the issues and context will surely have evolved even further, although the choices involved in designing good, innovative governance will not have changed. It is a fluid constancy that suits CIGI just fine.
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Thursday, July 29, 2021
Wednesday, July 28, 2021
Productive Bubbles
The persistent recurrence of speculative excess is a defining feature of financial capitalism wherever and whenever investors have the opportunity to trade assets. For the last 500 years, from tulip bulbs in the 1630s to cryptocurrencies today, the prices of assets have been subject to waves of herding behavior and momentum investing, with prices decoupling from any relationship to past, present and prospective cash flow. The economic historian Charles Kindleberger and the economist Robert Aliber summarized the phenomenon in their book on financial crises:
Investors have speculated in commodity exports, commodity imports, agricultural land at home and abroad, urban building sites, railroads, new banks, discount houses, stocks, bonds (both foreign and domestic), glamor stocks, conglomerates, condominiums, shopping centers and office buildings.
At the extreme, such speculation has come to be characterized as a bubble, a term associated with the iconic South Sea Bubble in London in 1720. As has often been the case, speculation in the shares of the newly chartered South Sea Company began with a plausible story: the opportunity for British merchants to take over the lucrative returns generated by trade with the new world from the fading Spanish Empire.
None other than Isaac Newton joined the fray, having transformed himself from the progenitor of mathematical physics in Cambridge to the wealthy master of the Royal Mint. Newton bought in early and cashed out for a healthy profit — but then as the bubble accelerated he could not stand it and reinvested at the top, shortly to lose everything. He is supposed to have remarked: “I can calculate the motions of the planets, but I cannot calculate the madness of men.”
Bubbles are ubiquitous. In his history of the city of London since the end of the Napoleonic Wars, David Kynaston chronicles a speculative “bull run” in every decade up to World War I. When New York then emerged as London’s successor, the great bull market of the Roaring Twenties followed. A long generation of “financial repression” followed the Great Depression and World War II, but then came the “money game” years of the 1960s. And stagflation in the 1970s yielded to a generation-long “super-bubble,” as George Soros characterized it, which peaked first with the dot-com bubble of the later 1990s and then in the derivatives-fueled credit bubble that exploded in the global financial crisis of 2007-8.
But not all bubbles are the same. When financial speculation is limited to the relatively unleveraged equity markets, the consequences of the inevitable bust are limited. But when speculation is fueled by credit and infects the core banking system, the consequences are likely to be devastating, as in the recession that followed 2008.
Occasionally, financial speculation fastens on to a transformational general purpose technology (GPT) that has the potential to create a genuinely new economy. Call it a productive bubble. The British railway manias of the 1830s and 1840s — when the GPT of steam power was applied to locomotion — were the first fully documented productive bubbles. The railways were built by newly created companies, endowed by Parliament with special privileges: Eminent domain enabled them to take land for their rights of way in return for fair compensation, while limited liability protected investors from losses beyond their actual investment.
“Not all bubbles are the same.”
First in the 1830s (the “little mania”) and then with substantially greater vigor a decade later (the “great mania”), a doubling of share prices induced the mobilization of funding to build out the railway network. When share prices collapsed, many of the promotional ventures became bankrupt, but no one tore up the railways. A financial fiasco left real assets in place, as it did a decade later when London financed a railroad boom in the United States of comparable dimensions.
In New York, the bull market of the 1920s encompassed massive investment in electricity generation and distribution. Public utility holding companies served as vehicles both for raising needed finance and providing necessary technical expertise. By the time the Great Depression took hold in 1929, installed generating capacity in the U.S. had increased from 13 to 33 million kilowatts.
Looking back in 1931 on the frenzied investment of 1925-1929, John Maynard Keynes highlighted the productive consequences of unsustainable speculation:
While some part of the investment which was going on in the world at large was doubtless ill-judged and unfruitful, there can, I think, be no doubt that the world was enormously enriched by the constructions of … 1925 to 1929; its wealth increased in these five years by as much as in any other 10 or 20 years of its history. The expansion centered round building, the electrification of the world and the associated enterprises of roads and motor cars. … The capacity of the world to produce most of the staple foodstuffs and raw materials was greatly expanded; machinery and new techniques directed by science greatly increased the output of all the metals, rubber, sugar, the chief cereals, etc.
In our own day, the dot-com bubble of the late 1990s both accelerated the build-out of the physical internet and funded the first wave of quasi-Darwinian exploration of this new economic space in search of commercially relevant and financially sustainable ventures. Of course, as always, proof of the last could only come once the bubble had burst and operating losses could no longer be covered by speculative investment. Amazon survived; pets.com did not.
The Unicorn Bubble
Today, speculation has been reignited in a very different financial regime from any we can observe historically. Since the global financial crisis, risk-free real interest rates have been driven to negative levels and held there by central banks around the world. In response, capital has flowed in large quantities to private, venture-backed new companies at extraordinary valuations — the “unicorns” — as well as into an array of innovative digital assets, from cryptocurrencies to non-fungible tokens.
As and when the financial regime reverts to historical norms of real returns and terms and credit spreads, much of this investment is likely to prove unproductive: New consumer-oriented digital services that could never find a sustainable revenue model and digital assets of questionable sponsorship and problematic regulatory legitimacy will fade away.
During the current wave of speculation, however, it is possible to read the signs of another nascent productive bubble: a green one. The promise is exemplified by Tesla. Bloomberg estimates that, in one form or another, Tesla has raised some $14 billion of risk capital while, over the past three years, its stock price has risen by more than a factor of 10. Pulled along in Tesla’s wake have been a variety of electric vehicle and related ventures. A number of these have secured capital through acquisition by special purpose acquisition companies (SPACs): Since March 2020, $120 billion has been invested in SPACs that pledged to merge with renewable energy, electric-vehicle and other environmentally sustainable businesses.
Unfortunately, commitment of capital to the sort of blind pools represented by these blank check companies marks the degenerate stage of financial speculation when, literally, anything goes. And so far, a green bubble lacks a critical enabling factor from outside the financial sector: an actively supportive, mission-driven state whose funding is unconstrained by the narrow calculus of cost-benefit analysis.
During the current wave of speculation, it is possible to read the signs of another nascent productive bubble: a green one.
In Britain, remember, the promoters of railway ventures gained parliamentary sanction and necessary powers for their speculative ventures based on detailed economic forecasts that only occasionally and often by accident were actually confirmed by results. In the U.S., railroad development was directly subsidized, first at the state and then at the federal level, by grants of public land seized from Native peoples and publicly administered until transferred for private profit.
Electrification depended upon a very different form of government intervention. The enormous upfront investment required to construct generating stations was accompanied by very low marginal operating costs: the cost of delivering the incremental electron asymptotically approaches zero. Under competitive conditions, with prices driven towards marginal costs, electric utilities would invariably run at a loss. The answer was to restrict competition through establishing electricity providers as regulated public utilities, enjoying local or regional monopolies in exchange for constraints on pricing and rates of return.
In the decades following World War II, all the components of the digital revolution — from silicon to software — were sponsored and accelerated by the U.S. Department of Defense. DOD funded both upstream research and development and served as the first, collaborative customer, pulling the supply side of the sector down the learning curve to low-cost, reliable production. By 1980, venture capital and public equity markets could fund at scale the new ventures that were founded to address the commercial and industrial markets for computers.
“So far, a green bubble lacks a critical enabling factor from outside the financial sector: an actively supportive, mission-driven state.”
When it comes to climate change, however, up until January, the U.S. federal government has been missing in action. At the margin, the American Recovery and Reinvestment Act of 2009 included small gestures toward public investment in response to climate change. But the loan guarantees offered to a handful of startups were not only too narrowly focused, they were also radically misconceived. These companies need procurement contracts, not loan guarantees, to support their development: procurement contracts like those DOD gave to the new semiconductor companies of the 1960s, which were renewable and expandable based on performance.
Tesla was able to repay its federally guaranteed loans from the flood of capital Elon Musk attracted. But the battery company A123 and the solar panel company Solyndra subsequently filed for bankruptcy. The embarrassment of the ARRA loan guarantee program became a weapon in the hands of climate deniers and opponents of the Obama administration generally.
The Biden administration appears firmly determined to promulgate a green agenda, if not a full-blown Green New Deal. It can look back no more than a year to find a relevant instrument for attracting investment in target technologies, such as novel energy storage systems. In response to the COVID-19 pandemic, advanced procurement contracts sped vaccine development at an unprecedented pace, building on prior investments by the National Institutes of Health in the science of mRNA therapeutics.
Governments cannot summon a productive bubble into existence on command. But by upstream investment in science and enabling technologies, augmented by broad-based, experimental procurement of the fruits of such investment before they are ready for commercial primetime, governments can tee up potentially productive targets for speculative focus. Along with such direct financial commitments, deliberately shifting the regulatory environment to tilt private sector demand in the desired direction is also available.
Monitoring Bubbles
Correctly reading a bubble in flight is, of course, a problematic exercise. The powers of rationalization among investors who are making money, urged on by charismatic promoters, have proven to be formidable too many times to count. But there is an equivalent of one of those tells that successful poker players look for. The tell of a bubble can be seen when demand curves invert — that is, when increased price is accompanied by increased demand.
When the laws of supply and demand are reversed, trading volume rises with the price of the asset as more investors are sucked into the speculative vortex. Less quantitatively specific signals can be observed as successively less credible ventures draft behind an evident winner, like the variety of electric vehicle companies hoping (in some cases in desperation) to be qualified as “the next Tesla.”
The parallel challenge is to track the extent to which an asset bubble is supported by leverage. Here the regulators have a primary responsibility. Innovation in finance is constant, and the game between financial entrepreneurs and regulators is neverending.
Relatively unleveraged waves of speculation are best left to run themselves out. The longer-term productive benefit of an innovation that attracts speculative attention is by no means always evident at first glimpse. And even if there appears to be no possible productive benefit, killing the speculative impulse at birth does have the potential to create a negative externality: an absence of enthusiastic investor response when a genuine productive bubble could generate social benefits.
The ongoing games playing out on the Robinhood brokerage platform is a case in point, best addressed with a time-honored meme offered years ago by an acquaintance who was a professional outside director of the sort of companies headquartered in the Cayman Islands. “Had God not made them sheep,” he opined of his minority stockholders, “they would not have been born to be shorn.”
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Monday, July 26, 2021
Saturday, July 24, 2021
Friday, July 23, 2021
The One-Earth Balance Sheet
GEORGE TOWN, Malaysia — Modern science arose by breaking down complex problems into their parts. As Alvin Toffler, an American writer and futurist, wrote in his 1984 foreword to the chemist Ilya Prigogine’s classic book “Order out of Chaos”: “One of the most highly developed skills in contemporary Western civilization is dissection: the split-up of problems into their smallest possible components. We are good at it. So good, we often forget to put the pieces back together again.”
Specialization produces efficiency in production and output. But one unfortunate result is that silos produce a partial perspective from specialist knowledge; very few take a system-wide view on how the parts are related to the whole. When the parts do not fit or work together, the system may break down. As behavioral economist Daniel Kahnemann put it: “We can be blind to the obvious, and we are also blind to our blindness.”
Silos make group collective action more difficult; nation-states, tribes, communities and groups have different ways of knowing and different repositories of knowledge. A new collective mental map is needed, one that moves away from classical Newtonian science, with its linear and mechanical worldview, toward a systems-view of life. The ecologists Fritjof Capra and Pier Luigi Luisi argue that “the major problems of our time — energy, the environment, climate change, food security, financial security — cannot be understood in isolation. They are systemic problems, which means that they are all interconnected and interdependent.”
“Siloed thinking created many of our problems with inequality, injustice and planetary damage.”
A complex, non-linear, systemic view of life sees the whole as a constant interaction between the small and the large: diverse parts that are cooperating and competing at the same time. This organic view of life coincides with the ancient perspective found in numerous cultures — including Chinese, Indian, native Australian and Amerindian — that man and nature are one.
In short, modern Western science has begun to return to the pre-Enlightenment worldview that saw man, God and Earth in somewhat mystic entanglement. The late Chinese scientist Qian Xuesen argued the world was made up of “open giant complex systems” operating within larger open giant complex systems. Human beings themselves are open giant complex systems — every brain has billions of neurons connected to each other through trillions of pathways — continually exchanging and processing information with other humans and the environment. Life is much more complex, dynamic and uncertain than we once assumed.
To describe this dynamic, complex and uncertain systemic whole, we need to evolve trans-disciplinary thinking that integrates the natural, social, biological sciences and arts by transcending disciplinary boundaries. Qian concluded that the only way to describe such systemic complexity and uncertainty is to integrate quantitative with qualitative narratives, exactly what the Nobel Laureate Robert Shiller advocates for in “Narrative Economics.”
Living Nature
The idea of the Earth (Gaia) as a living whole that has a delicate balance between biology and the physical environment has long resonated with some ecologists and those close to nature. Recent progress in biological, neural, ecological and information sciences has established the Earth as alive. Humanity has abused the living Earth, and at a basic level, nature is responding. The German historian Philipp Blom, for example, called the 17th-century mini Ice Age “nature’s mutiny,” as if nature can exercise revenge against abuses by humans.
Unfortunately, politicians and economists committed to growth in the short term view nature in a different light. When the 1972 Club of Rome report “The Limits of Growth” was published, political economists mostly ignored it — they saw nature as an inanimate resource to be exploited in order to build wealth.
Since at least World War II, the benchmark measure of economic growth has been gross domestic product (GDP), a flow concept directed toward adding value for human life on the planet without taking into consideration the value destruction of irreplaceable natural capital through resource depletion, biodiversity loss, pollution and other costs that impact human health and well-being.
As the Cambridge economist Partha Dasgupta lamented in a recent report on biodiversity, “Global climate change attracts attention among intellectuals and the reading public not only because it is a grave problem, but perhaps also because it is possible to imagine meeting it by using the familiar economics of commodity taxation, regulation and resource pricing without having to forego growth in material living standards in rich countries. The literature on the economics of climate change has even encouraged the thought that, with only little investment in clean energy sources over the next few years (say 2% of GDP), we can enjoy indefinite growth in the world’s output of final goods and services (global GDP).”
This focus on “produced capital” was, until recently, blind to “natural capital,” meaning that biodiversity and non-renewable natural resources like air, water, forests, seas and space that are essential to human well-being were being destroyed at an unprecedented rate, threatening the well-being of humanity as a whole.
One Earth
What we need is a “One-Earth Balance Sheet” to describe the true and fair accounting for Earth that covers not just the flows and stock of everything, but also natural capital and biodiversity. We do not yet have much of the necessary information to create such a balance sheet, but if we can collectively build it up from all the economic, financial, environmental, social and governance information that is increasingly available, we would slowly construct a new map as the basis for discussing shared goals, challenges and solutions.
That was what happened during the Renaissance. European cartographers, navigators, merchants, bankers and scientists drew upon printed maps and knowledge gathered from Arab and Asian sources to slowly improve their maps and technology. There was no top-down design, but rather a collective intellectual and culture “becoming.” New maps led to the discovery of the Americas and new paths to globalization.
To map our collective impact on Earth and each other, we need to show how siloed thinking created many of our problems with inequality, injustice and planetary damage. The One-Earth Balance Sheet may help to unveil our blind spots and imbalances. Life is not about partial perspectives of false binaries between good and evil, man and planet, but in recognizing that the many are one.
The most basic flaw in economic accounting is statistical stock-flow inconsistency. The United Nations System of National Accounting (SNA) was devised in 1953 to create accounting at the national level through the measurement of flows, such as income, expenditure, imports and exports. Such data is extracted from basic corporate, household, government and financial accounts, each with their accounting and valuation flaws. The SNA has been updated and revised over the years, but it still lacks data, and progress towards global accounting remains slow.
Delays in compiling national balance sheets mean that policymakers are often blind to stock imbalances. For example, in the 2008 global financial crisis, bank regulators were shocked to find undisclosed debt hidden in derivatives “below the line” or in off-balance, offshore vehicles. Environmentalists are furious that externalities (unmeasured pollution, environmental deterioration, inequalities) are not measured, resulting in bad policies and predatory business practices.
After the 2008 global financial crisis, the Stiglitz-Sen-Fitousi Commission identified the limits of GDP as an indicator of economic performance and social progress. It noted that the key defect of the GDP concept is under-measurement of externalities, natural resource depletion and biodiversity destruction. Indeed, non-market activities, such as the contribution of women to housework, are not measured at all. Specifically, the commission sought to shift the emphasis from measuring economic production to measuring people’s well-being.
Since 2008, the major economies, including most in G20, have constructed their national balance sheets in order to have a better understanding of the relationship between sectoral and international flows and stocks. The latest OECD report on natural capital and biodiversity found that out of 89 countries that implemented accounts consistent with the U.N. System of Environmental Economic Accounting, most are incomplete and only 34 have developed ecosystem accounts. Even today, the International Financial Reporting Standards have no separate disclosure standard on non-traditional indicators such as environmental, social and governance measures. As any data scientist will tell you: “garbage in, garbage out.” The quality of lofty quantitative economic models depends on data quality.
“If we consider Earth as a living being, we can easily amend the current accounting measurement frameworks to take into consideration human interactions with nature.”
Each sovereign country behaves today as if its monetary, fiscal or consumption policies operate in a silo, impacting its own citizens only. Since there is no global government or central bank, no one compiles a global monetary and fiscal accounting to see if what individual nations do is consistent with the Sustainable Development Goals for the planet as a whole. Citizens are not given a complete picture of what alternative policies are available that could help the planet as a whole.
But if we consider Earth as a living being, we can easily amend the current accounting measurement frameworks to take into consideration human interactions with nature. For example, suppose we create an extra “nature” sector for national and international economic accounting systems. We could keep records of how much it has “transacted” in terms of carbon emissions and capture, usage of natural resources, pollution and more.
There is much work to do to standardize concepts, frameworks and disclosure requirements. But the building blocks for the compilation of the One-Earth Balance Sheet, with the input of natural and social scientists and communities are broadly available and can be accelerated to create a common narrative on dealing with climate change and inclusivity.
Having a One-Earth perspective would allow more pluralistic debate over the costs and benefits of applying unilateral policies, such as carbon tariffs that shift the costs to exporting countries. If there is a shortage of funds to finance carbon-reducing investments, could these be funded by a globally agreed Tobin-tax on financial trading, which could cut short-term speculation for better resource allocation?
A One-Earth Balance Sheet would be able to identify where our largest imbalances are. Many are already obvious, such as social, income and wealth. But others, such as consumption behavior relating to pollution, carbon emissions and choke points (vulnerable links) in global networks and supply chains, have not yet been mapped adequately.
The pandemic has shown how we need whole-of-government and whole-of-society approaches to deal with our collective challenges. The lack of good data at the national and global level has led to incomplete and flawed policies, as well as misunderstandings that led to conflict.
The task of compiling a One-Earth Balance Sheet is beyond any single individual or group, as the data would be multidimensional and multidisciplinary. Concerned individuals and multilateral agencies should convene a global commission to give urgency and political support for this task — not from a national perspective, but rather a planetary one. All of us and the planet are impacted by existing individual, national, regional or geopolitical behavior. Getting the whole spectrum of academia, civil society and national and multilateral agencies to contribute to data collection to build the One-Earth Balance Sheet would help create shared efforts for a common understanding of shared threats.
This article has been re-posted with permission from the website Noema
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Thursday, July 22, 2021
Reconstructing US-China Relations
With the latest Biden administration accusations that China is responsible for hacking US companies’ email systems, US-China relations took yet another turn for the worse. While the administration has not yet indicated whether there would be any repercussions, the accusation feeds into the predominant narrative of the foreign policy establishment that China is neither a partner nor competitor, but actually a current or likely future enemy.
Does this bipartisan foreign policy view on China proceed from false assumptions and faulty principles? Is there a possibility for a new framework of cooperation between the US and China to create a more peaceful and sustainable world? The world-renowned development economist Jeffrey Sachs, who is Director of the Center for Sustainable Development at Columbia University, recently outlined such a framework for US-China relations in an extensive audio interview (with transcript) with Rob Johnson, president of the Institute for New Economic Thinking, for the podcast, “Economics and Beyond with Rob Johnson” (also available as an abridged videocast).
According to Sachs, US-China relations ought to revolve around several key principles that are quite different from the ones that the US has been pursuing ever since China’s GDP nearly reached the size of the US’s GDP (or even exceeded it, in PPP terms in 2017). In a reoriented US-China policy framework, the relationship would revolve around cooperation instead of competition, the acceptance of independent economic development, abandonment of an imperial mindset, and the domestic management of negative international trade impacts.
First, regarding competition versus cooperation, Sachs says, “We need a world in which cooperation is the dominant mode, whether that’s to fight a pandemic or to fight climate change or to promote development. We can’t do this in a divided world.” These issues are too serious to be left to a competitive framework, which would only result in distrust, a waste of resources (such as in new arms spending), and a futile struggle for hegemony with huge risks of open conflict. This ought to be obvious, but it is not, mainly because much of the US establishment sees China as an enemy that must be contained before it’s too late.
This leads to the second principle of allowing for independent economic development. Sachs explains that, historically, “American policymakers believed China would become wealthier and it would develop, but under the wing of the United States. We would be clearly in the technological lead, we would be organizing global principles, and there would be a place for China just like there would be a place for the whole world in development.” Viewing China’s economic development through the lens of economic subordination to the US leads to dangerous consequences, where we miss opportunities to “decarbonize our energy systems, solve problems of transport and mobility, help poor people get educations,” says Sachs.
When China rejected economic subordination to the US and decided to pursue an independent path of economic development, the US wrongly interpreted this as a form of aggression. The US thus proceeded to surround China diplomatically and even militarily, “circling the South China Sea while we openly talk about the Quad countries of Japan, Korea, Australia, India as the protection against China.” Of course, China has not taken this diplomatic and military encirclement lightly.
The third principle the US needs to adopt is that of letting go of its imperial mindset. According to Sachs, English imperialism from the 17th century to the first half of the 20th century “was transferred to the Anglo-American political culture in the 19th century, marked by ‘manifest destiny’ and the rise of the US as a global power. As soon as the US wars of extermination and genocide were completed against Native populations, the Anglo-American vision spilled out into building an overseas global empire. This started first in the Caribbean, the Philippines, and coastal China. It’s the foundational myth of 20th century America that our manifest destiny is also a global destiny.”
This perceived global destiny turned into a dangerous national perception that the US can do whatever it pleases on the international stage, rejecting international institutions at its will. For example, Sachs highlights that “the United States has walked out of the Paris Climate Agreement under Trump, walked out of the World Health Organization under Trump, walked out of UNESCO, cut aid, behaved atrociously, imposed unilateral sanctions.” One could say that this is all Trump’s doing, but Biden has barely acknowledged the damage his predecessor caused, and in some cases, such as with the sanctions on Cuba, Venezuela, and China, has not reversed or even eased the Trump policies.
Sachs points out that China, however, is interested in adhering to international law and working within a global multilateral framework, “because they see that with international law they wouldn’t be held back, they would be responsible for their own development.”
Finally, the fourth shift in principles relates to the management of international trade, where the US has been largely responsible for allowing China to become a global player. However, when China began to enjoy success in advanced technologies, at times even outpacing the US in manufacturing and innovation (as in the case of Huawei and 5G technology), not only has the US simply claimed that China is cheating but under Trump has claimed that China’s successes have come directly at the expense of the American people. This has especially riled up anti-China sentiments in the US industrial heartland.
Sachs points out that the economic theory that increasing international trade leads to greater economic growth remains true. However, unequal benefits can indeed result from this trade-led economic growth. The resulting inequalities, however, should be addressed through domestic policies (such as income redistribution), rather than trade protectionism. If the US had properly treated the decline of manufacturing in the industrial heartland as a domestic issue, and not an anti-China issue, it would have made sure that those who lost jobs or wages because of US trade with China would have found employment elsewhere, or would have been bolstered by transfer payments of some kind. Sachs brings up the social democratic model, found in countries like Sweden, which “was really always based on that idea that we shouldn’t resist productivity increases, new technologies, and international trade, because everyone will get taken care of through active social policies. A bigger pie will end up in more vacation time, more leisure time, and better healthcare for all workers, not just the lucky few.”
Instead, the US libertarian ideology treats those who fall behind in the economic system as “losers”–not just economic losers, but also moral losers–who do not deserve to benefit from state-provided economic relocation and support. “In the American mindset, and it’s a complicated cultural mindset–it goes back to John Locke, it goes back to the Puritans, it goes back to the prosperity gospel, it goes back to racism–the mindset is, if you lose, that’s tough but you’re probably a loser. And if you’re depending on somebody else’s help, you’re really a loser.” Rather, Sachs says, “The right way to handle an issue of inequality [due to trade] is through U.S. redistribution rather than closing down global trade. You close down global trade, everybody loses.”
The Chinese have a very difficult time understanding this American mindset, argues Sachs, as the Chinese ask, “If you have some people that need help, why aren’t you giving them the help? Why are you blaming us?” China does not have this same difficulty with Europe, though, “because in Europe … the social democratic ethos is pretty pervasive.”
Taken together, these four shifts in foreign policy principles: from competition and conflict to cooperation, from non-acceptance to acceptance of independent economic development, from an imperial to a non-imperial mindset, and from blame of China to domestic responsibility for the unequal consequences of trade, would lead to a far more constructive relationship with China, one in which we could more effectively address the pandemic, the climate crisis, and avoid war.
As Jeffrey Sachs and Rob Johnson both point out in their conversation, none of these issues means that China is beyond reproach for human rights issues. Indeed, every major power – the US, China, European Union, and others – share the common responsibility to abide by the Universal Declaration of Human Rights, and both China and the US can do better on this account. According to Sachs, for the US to single out China’s shortcomings is self-serving, hypocritical, and unconstructive. He believes that the US should be working together with China, the European Union, and other parts of the world to strengthen the UN human rights system under international law and in line with the UN Charter.
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Wednesday, July 21, 2021
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Thursday, July 15, 2021
Could Modern Crises Stem from Problems in the Human Brain?
You’ve likely heard pop culture musings on the two hemispheres of your brain. The left side is said to deal with reasoning and facts, while the right side is supposed to be the creative, emotive center. Jane over there with the slide rule must be left-brained, but Joe, the artist, is right-brained, and so on.
But this simplistic dichotomy is a caricature of what’s actually going on in your head.
Both hemispheres are involved in reason and creativity, and everything else, too. The fact that we have two hemispheres at all is a pretty weird thing. We don’t have two sides of our stomach, for example. By contrast, not only do our brains have two halves, but they are organized asymmetrically. Even weirder, experiments show that each side is able to maintain consciousness on its own. Scientists are still puzzling over this arrangement, but it looks like the two sides come equipped with distinct ways of helping us to exist. Like disorderly twins, they might be separated so they don’t get in the way of each other.
There appears to be a striking difference not so much in what the two hemispheres do, but in how they go about doing it. And that, according to psychiatrist Iain McGilchrist, author of The Master and His Emissary: The Divided Brain and the Making of the Western World, makes all the difference. His book, published in 2009, puts forth the idea that fundamental distinction between the hemispheres lays in the modes of attention they give the world, delivering, as it were, two versions of our human sense of reality. Each version is valuable and they are in many senses complementary. They are also in opposition to each other.
McGilchrist proposes that what we want is for the two hemispheres to integrate their different takes on reality, to enhance each other’s strengths. One side, he believes, is meant to ground and guide the necessary but limited work of the other. The problem is, the two may be getting out of sync. He thinks that one version of reality – the less grounded one - has taken over to the extent that we don’t even notice what’s happening. It’s like the relationship between a wise ruler and her trusted emissary – the clever emissary was supposed to be carrying out the ruler’s mission, but now he’s run off with his own agenda. The emissary is running amok. And he may end up destroying us.
As the pandemic continues to threaten us, and the world moves further toward alarming patterns of technology, despoilation of nature, social unrest, and human alienation, his work is worth another look.
A Tale of Two Brains
This idea that our minds are operating on different tracks has been around for a while. For example, the notion of the conscious and the unconscious speaks to a mental division, as do more recent concepts like that outlined in Nobel laureate Daniel Kahneman’s Thinking Fast and Slow.
The brain is physically divided into different regions, such as top to bottom, and front to back, but McGilchrist is primarily concerned with the right/left division (though all are related).
The left hemisphere specializes in narrow focus. It tries to pin things down, looks for detail, and breaks things down into parts and categories. It likes rules and linear sequences, and goes for a sort of quick-and-dirty, just-the-facts approach, according to McGilchrist. The left side excels in the sort of homing-in attention that lets an animal grab a fruit, peck a seed, or chase a rabbit.
Significantly, the left side sees things according to their usefulness and figures out how to manipulate the world to its ends. It’s not too interested in relationships and can’t give us a sense of the whole, but it gives us the power to learn and make things. We need it to be human.
The left hemisphere can also lead us to places that begin to look inhuman. It acts as a kind of processing center, tending to get fixated on data, models, and maps, losing touch with the world around us if its findings don’t go back to the right hemisphere for context. In McGilchrist’s view, it has a kind of optimistic overconfidence about what it sees and constantly works to shut out anything that doesn’t agree with its narrow take on reality. It’s reductive, mechanistic, and self-referential, and it has an enormous capacity for denial. It’s also more tuned into anger and aggression than the right side. The left side doesn’t have a sense of humor.
The right hemisphere, in contrast, deals with a broader kind of attention. Where the left side’s goal is to manipulate things, the right tries to understand them in context, to see the big picture and how the parts fit into the whole. It pays attention to our relation to others, to whether they are friend or foe. The right side is more open, receptive, and aware of signals from surroundings. Its attention is more flexible and it attends to processes rather than fixed things. Its emotional modes are empathy and bonding. While the animal is chasing prey with laser-like focus, it still needs to maintain a larger awareness of what’s happening around it. It has to pay heed to the world in two ways at once.
McGilchrist thinks that because the right side is more interested in what exists “out there,” only it can bring us new information. The left hemisphere deals with what it already knows and therefore prioritizes the expected. This works well in routine situations, but less so when we need to revise our initial assumptions. The right hemisphere is better at shifting the frame.
“Because the left hemisphere is drawn by its expectations,” writes McGilchrist, “the right hemisphere outperforms the left whenever prediction is difficult.”
But don’t tell that to the left side – it thinks its predictions are always right.
Reasoning and Language
What about that idea that the left side is the part that enables our human ability to reason?
That’s not really the case, asserts McGilchrist, noting that reason didn’t pop out of nowhere. It evolved from and makes use of the kinds of perceptual and motor inferences present in other animals. Reason isn’t what separates us from other creatures, he posits. It places us on a continuum with them.
McGilchrist further observes that there are different kinds of reasoning. There’s the linear, sequential mode, which the left side does well, but there’s also intuitive reasoning, like deduction, and some types of mathematical reasoning, that are mainly dependent on the right hemisphere. The left side is involved in explicit reasoning, like problem-solving, while the right side is more about implicit reasoning, the ‘aha!’ moment that happens when our attention isn’t narrowly focused.
Contrary to what is commonly thought, language, too, is not solely a left-brain phenomenon.
McGilchrist believes that language probably developed first in the right hemisphere in the kinds of vocalizations and gestures our ancestors used before they had words—the sort many animals use, and a lot of languages still include. He speculates that music may be the ancestor of human language, arising as a means of communication with others and a way to create social cohesion.
Words and grammar, in his view, came later to help us not only to map the world, as some have suggested, but to manipulate it. We can communicate to someone else through a musical sound, like a whistle, but it’s much easier to engage with something removed from us in space and time, like an object or a tool, through words and sentences. McGilchrist speculates that the earlier, right-brained kind of language is oriented towards others, whereas the later, left-brained language is more about things.
The left side’s words let us categorize, memorize and be precise. They help us plan and turn us into bureaucrats, as some of the most ancient surviving written texts attest. Referential language also helps us bend other humans to our will -- and gives us greater power to deceive them.
Not that manipulation is always a bad thing. Verbal and written language let us design stuff and change our environment, to build civilizations. But in McGilchrist’s view, the left hemisphere’s language is associated with the idea of grasping, which shows up in the way we talk about “getting hold of an idea” or “grasping a concept.” Referential language is linked to possession. When the relational element falls away, the sense of social cohesion withers.
The right side seems to engage with the part of language that binds us to emotion and embodied experience. That’s because language is not some kind of cognitive machine, insists McGilchrist, but an “inextricable part of an embodied, living organism” that develops through the “empathic process of intelligent imitation.” Babies learn language, he says, by imitating others, a right-brained strategy, not by deploying abstract rules, the way of the left brain.
So language is a hybrid of the strategies of the two sides. McGilchrist thinks that while its foundations lay in the right hemisphere, in the body and the world of experience, its referential aspect came over to the left side, where it performs important functions, but also tends to lose contact with reality, becoming “a self-consistent system of tokens,” as he puts it.
The left hemisphere’s reasoning and language may have serious limitations. The famous Paradox of Theseus helps explain how its habits can hamper us. This thought puzzle relates that the ship in which Theseus returned to Athens from Crete after he slew the Minotaur was preserved by the Athenians long after his death. Each time a plank of the ship rotted away the Athenians would replace it with a new one. After a long time, all of the original planks had been replaced. Was it the same ship or a different ship? Philosophers disagreed.
McGilchrist suggests that it’s only the left side of the brain that struggles with this paradox – the side oriented towards precision, linear logic, and pinning things down. The right hemisphere, attuned to fluidity, to the whole rather than the parts, and reasoning that is more intuitive, is okay with paradoxes and the notion that more than one thing can be true, depending on context. It appreciates that forms are fluid, ever-changing.
McGilchrist warns that we’ve become over-reliant on our left hemisphere, which tends to confound reality because it doesn’t consist of discrete parts and sequences. As Heraclitus suggested, reality instead flows like a river. We need the left hemisphere’s take on things to build a rocket or plan a harvest, and it lets us create useful maps. But are we getting the map mixed up with the territory, and consequently getting lost?
In and Out of Balance
McGilchrist sees the struggle of the left hemisphere for dominance playing out in human culture – a claim that some think may be a synapse too far. He claims that as individuals, we seem to use whichever hemisphere is better at a given task rather than shift between them. But sometimes we start out with the “wrong” hemisphere, and then tend to default to it. It’s a kind of winner-take-all phenomenon, which can lead to an overall bias that may eventually show up in and shape the culture at large.
He argues in favor of biological evidence that changes are potentially taking place in our physical brains. But even if you don’t find that idea compelling, he offers the notion of a battle in the bicameral brain as a useful metaphor (metaphor, by the way, is a right-side specialty). It helps us to see how certain strategies of perception and their attendant values not only shape the world, but shape us in turn. In McGilchrist’s view, our minds adapt to the culturally constructed world that we live in, and the structure of our brains also brings that world about. Our brains are then rewired to further adapt to the world they have created in an ongoing feedback loop.
Going back in history, McGilchrist discusses periods in which culture seems to reflect a desirable balance between the two hemispheric modes, like the Renaissance, in which art and science flourished together and were mutually influenced. During other periods, he sees domination by one hemisphere, such as the left-brained Enlightenment, challenged by a countermovement, in this case, the right-brained Romantic Revolution.
You can probably see where this is going. The Industrial Revolution, according to McGilchrist, is the point at which the left side really took off, leaving embodied reality so far behind that we may be in danger of losing it altogether. Faced today with Silicon Valley visions that leave our bodies and the Earth behind, this doesn’t seem to be an exaggeration.
McGilchrist stresses that the left hemisphere prefers the human-made rather than the organic because it prizes certainty, and we can be confident about the stuff we make, take apart, and put back together. Living phenomena, on the other hand, are mysterious and forever in flux. We can’t ever know them completely. Recall, the left brain prioritizes what it knows, so the human-made world wins. Winner takes all.
If attention changes the nature of what we find, and the left hemisphere’s attention is dominating our view of reality, then it’s no surprise that we’re increasingly orienting ourselves towards virtual worlds, towards maps rather than territories. Alone at our computers, we are atomized and detached – just the way the left brain likes it. The left hemisphere prefers a model of reality to reality itself – even if the model is a little uncanny. Or just plain wrong.
The left brain has contributed impressive technology and advances to human existence, but in the service of what, exactly? If it’s in the service of our happiness and well-being, there’s ample evidence that it is failing. Our success, McGilchrist reminds us, is not just about manipulating our environment, but in living fulfilling lives and creating close-knit societies. In addition to reaching out to grasp, we need to reach out.
But he sees our hemispheric imbalance starting early in our education, moving rapidly from the right-sided activities of storytelling and play in early childhood to instruction that is increasingly left-brained, technical, competitive, and abstract -- all STEM and no wisdom. We move away from our embodied, relational selves into our heads and our screens, perhaps never to return.
The Case of Economics
The field of economics is an interesting case to consider in light of McGilchrist’s work, and something he has touched upon in discussions subsequent to the publication of his book.
Economics is a child of the Enlightenment and influenced by the mechanistic view of the world laid out in Newtonian physics, emerging at a time when thinkers were preoccupied with finding unchangeable rules for how everything worked. The discipline started out embedded in the human context of moral philosophy. In the work of moral philosopher Adam Smith we can see what McGilchrist might view as an attempt to balance right and left hemisphere perspectives. Smith was the author of both The Theory of Moral Sentiments and The Wealth of Nations. But his first work was soon forgotten and his later book became a touchstone of the Enlightenment period and fundamental to our own era.
Economists made use of machine models and mechanistic perspectives, and, just as McGilchrist describes as the modus operandi of the left hemisphere, ended up with a propensity to see everything in those terms. Start out with a hammer, and everything looks like a nail. Human beings become atomistic “rational actors” behaving in their economic self-interest instead of relational beings embedded in various social contexts, their motivations and behavior forever fluctuating.
Economists became fixated on what turned out to be flawed models of reality, aiming at achieving certainty, but instead slipping further and further into a narrow perspective that caused them to miss the big picture. Somewhere along the way, they got trapped in a self-referential hall of mirrors, discovering more of what they already knew, resistant to ambiguity and the fluidity and complexity of reality.
Exhibit A: the Global Financial Crisis of 2007-8. Most prominent economists missed what was coming in their elaborate predictive models. Hadn’t they prioritized models at the expense of experience? It certainly looks as if an overconfident faith in markets (recall the left side’s blithe arrogance) had blinded them to their obvious failures and the greater human and environmental context in which markets manifest and operate.
Among physicists, work in quantum mechanics and ideas like Heisenberg's Uncertainty Principle had made practitioners more comfortable with ambiguity at the core of the universe. In philosophy, too, there was a move away from the left-hemisphere-like division of mind/body, subject/ object that held sway in the West from Plato until the nineteenth century.
But economists, particularly those of the Neoclassical tradition, kept going for false clarity. They were assertive and predictive instead of questioning and provisional. They stuck to their models, and still often stick to them today, no matter how many times they are proven wrong.
Some economists, like New York University’s Roman Frydman, who works on the concept of imperfect knowledge with the Institute for New Economic Thinking, have been trying to bring what McGilchrist would describe as more right-hemisphere insights and approaches into economics, but they are still vastly outnumbered. Economics departments are still dominated by left-hemisphere strategies, by decontextualized and disembodied thinking, by models and algorithms that can get reality spectacularly wrong. The discipline is insular and self-referential, keeping itself too isolated from other fields. Just the way the left side likes it.
Economists appear to be the clever emissaries of academe. Running the show but running amok, too often deaf to the master’s wisdom.
Into the Light of Things
If the two hemispheres are battling for supremacy, the question arises: which side are we on? If McGilchrist is correct, we should be on the side of both, in favor of balance.
But if we continue to let the emissary run rampant, he warns, we may end up in a very nihilistic place – buried alive in algorithmic procedures, virtualized existence, expanded bureaucracy, and a disenchanted, fragmented world where we are stranded in a permanent state of unfulfilled desire, so bored and alienated that we spend our time seeking novelty or numbing ourselves further. We keep on reducing the world to a commodity, exploiting natural resources, and becoming more miserable in the process. We worship what John Ruskin called “The Goddess of Getting On,” forgetting the wonder of our embodied being and Ruskin’s reminder that “the only wealth is life.” We reduce our fellow human beings to units and statistics, and become willing to sacrifice them to “the economy,” as the pandemic has illustrated. Or simply interact with avatars and robots.
If we want to bring the right hemisphere back into its proper place as the master of our minds and the wise influencer of our reality, then we have to take care of what we pay attention to, and how. We attune ourselves to a different, more open, and flexible kind of seeing. We refuse to let the left hemisphere shut down our options. We attend to intersubjectivity, empathy, and patient attention. We use narrative and metaphor and always strive to see the bigger picture. We attend to self-other interactions, to relationships, and to relational values. We tap into communal wisdom and the knowledge of cultures outside the West that are not so left-sided in their approach to the world. We strive to have contact with nature and other people, with everything that exists outside ourselves.
“There needs to be a process of reintegration,” writes McGilchrist, “where we are brought into the experiential world again.”
Or, as William Wordsworth, a right-sider if there ever was one, once put it, we “Come forth into the light of things.”
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Wednesday, July 14, 2021
New Ecuadorian Government Teams Up with Powerful International Lobbies to Rejoin Investment Treaties Prohibited by the Constitution
In his two months since becoming president, Guillermo Lasso has taken aggressive steps to rejoin Investor-State Dispute Settlement (ISDS) mechanisms that Ecuador had previously denounced. On June 21, Ecuador’s ambassador to Washington signed the country’s re-entry into the World Bank’s International Center for Settlement of Investment Disputes (ICSID), which Ecuador had pulled out of in 2009. Then, incredibly but perhaps unsurprisingly, Ecuador’s Constitutional Court decided that Ecuador’s reentry into ICSID did not require legislative ratification. Now, the government is pushing for a reinterpretation of the Constitution that would allow for Ecuador to enter into bilateral investment treaties (BITs).
Ecuador’s withdrawal from ICSID was part of a broader process that resulted in the termination of all of Ecuador’s BITs. Article 422 of the new Ecuadorian Constitution, adopted by popular referendum in 2008, stipulates: “The Ecuadorian State shall not enter into treaties or international instruments where the Ecuadorian State yields its sovereign jurisdiction to international arbitration entities in contractual or commercial disputes between the State and natural persons or legal entities.”
As a result, the government of Rafael Correa (2007–2017) terminated a first batch of BITs in 2008. A few months later, it left ICSID. In 2013, the Ecuadorian government commissioned a group of experts to audit its arbitration cases and all its BITs, including the legality of their ratification, and their repercussions on the country. The Commission for the Audit of Investment Protection Treaties (CAITISA), composed of academics, lawyers, government officials, and civil society groups, concluded that many of Ecuador’s BITs had not been adequately ratified. It also found that the treaties failed to attract foreign investment to Ecuador.
CAITISA’s report also identified the usual snags of ISDS mechanisms, not least the problematic issue of arbitration: lawyers with close ties to industry being contracted on a case-by-case basis to moonlight as arbitrators for these mechanisms, and Global South countries mostly losing (at best tying) arbitration cases against transnational corporations, even when the governments had been acting in the best interests of their country or defending the rights of their people. The report confirmed, as many academic studies had before, that foreign investment goes to countries that experience steady economic growth; have strong institutions, including a strong judiciary; and are stable, including politically and socially. It debunked, once again, the myth that aggressive deregulation and forfeiting sovereignty are a magical path to attracting investment. Furthermore, the report demonstrated that the BITs created a shield of impunity for transnational corporations’ environmental damage and tax evasion.
Ecuador was also able to capitalize on a growing global consensus regarding the negative effects of ISDS, which many countries signed on to from the late ‘80s to the early 2000s, during the heyday of deregulation and race-to-the-bottom approaches to attracting investment. Some of the larger emerging economies had led the way: South Africa terminated its investment treaties in 2012; Indonesia in 2014; India in 2017. Among Latin American states, Brazil never ratified any treaties that included ISDS, and Bolivia terminated its BITs in 2008.
Even the European Union was having second thoughts, as a result of several EU member states being sanctioned by arbitration courts merely for upholding European law. This led European Commission President Jean-Claude Juncker to write, “... Nor will I accept that the jurisdiction of courts in the EU Member States is limited by special regimes for investor disputes.” Then Donald Trump announced that he would revisit the ISDS clauses of NAFTA, and both Democrats and some Republicans wanted to water down ISDS provisions in the US-Mexico-Canada Agreement that replaced NAFTA. The consensus around ISDS seemed to be dwindling. After fresh authorization from Parliament, and with prior decisions by the Constitutional Court, in May 2017, Ecuador finally terminated its 16 remaining BITs, including with global heavyweights such as the United States, the United Kingdom, France, Germany, Spain, China, and the Netherlands.
Ecuador’s next president, Lenín Moreno (2017–2021), did not share this critique of the mechanisms that corporations use to coerce states into shunning effective regulatory systems, be they in the realm of taxation, environmental safeguards, or labor rights. Eager to return to the neoliberal policies of the 1990s, and under intense lobbying from transnational corporations, the Moreno government asked the Constitutional Court to reinterpret Article 422, arguing that it only applied to trade disputes. The move was remarkable in its audacity: Article 422, which mentions the generic term “contract,” is clearly intended to prohibit arbitration of investment disputes. The minutes from the Constituent Assembly that drafted the Constitution, and the Constitutional Court’s multiple prior decisions, also support the interpretation that Article 422 concerns investment. The court has thus received scores of amicus curiae from reputed domestic and foreign academic experts and from civil society organizations calling on it to reject the bid.
The deadline for the Constitutional Court’s interpretation of Article 422 has long passed, but the new government of neoliberal die-hard Guillermo Lasso is applying increasing pressure on the court to allow for a swift return to ISDS mechanisms. The government presented its signing of ICSID as a fait accompli to put pressure on a Constitutional Court that didn’t require much pressing. The court had allocated responsibility for analyzing reentry into ICSID to Teresa Nuques, a justice who should have been disqualified from being rapporteur judge in this case for having been the director of the arbitration center of the Guayaquil Chamber of Commerce and a vocal proponent of ISDS. In the end, two justices argued correctly that Article 419 of the Constitution requires legislative approval of any treaty that involves relinquishing domestic juridical powers to a supranational body. But they were outnumbered. On June 30, the court announced its decision that legislative approval of ICSID membership was not mandatory.
The timing of Ecuador’s reentry into ICSID is also striking. A mere three weeks earlier, ICSID ruled in favor of Franco-British oil company Perenco in its arbitration case against Ecuador. Ecuador was sentenced to pay the company US $412 million (a US $372 million fine, plus interest) for breaching the France-Ecuador BIT clause on “indirect expropriation.” In 2006, Ecuador’s Congress had unanimously passed a law that mandated revenue-sharing of windfalls resulting from surges in commodity prices. In 2007, the government further modified a regulation to maximize revenues for the State. Most oil companies established in Ecuador accepted the new terms, but not Perenco, which never paid the amount due. When the tax authority claimed the amount owed by seizing an equivalent quantity of oil, Perenco left the country, without paying for the damage that its operations caused to the environment. While the arbitrators did not consider the windfall revenue sharing to be expropriation, they did decide that Ecuador’s decision to take over Perenco’s operations, after the company left the country, fit that criterion.
The Perenco case is a perfect example of everything wrong about current forms of ISDS. Perenco is not headquartered in France or the UK; it is registered in the Bahamas. At the time of the dispute, the Bahamas was on both Ecuador and France’s list of tax havens. Perenco Ecuador Limited, moreover, has four other Bahamas-based entities in its chain of shell companies before actual physical persons can be identified as shareholders. Of course, there is no — and has never been — investment treaty between Ecuador and the Bahamas. So Perenco, headed by the wealthy Perrodo family (considered to have the fourteenth-largest fortune in France), went “treaty shopping.” Corporations established in tax havens often resort to the corrupt practice of “shopping” for investment treaties signed by other countries in order to enjoy the best of both worlds: protection and impunity.
France could seize this opportunity to rein in its corporations so that they can’t have their cake and eat it. If you evade taxes, then you can’t enjoy the protection of treaties signed by the French state. President Emmanuel Macron has often criticized tax evasion. His minister of the economy and finance, Bruno Le Maire, has said, “tax evasion is not only an attack on the treasury. It’s an attack on democracy.” The Perenco case provides an ideal test of France’s commitment to seriously tackle this problem by agreeing to a bilateral interpretation of the BIT.
The Ecuadorian Ministry of Communication, for its part, announced on June 1 that the Ecuadorian government would pay Perenco the fine. Ecuador could of course resort to several measures to avoid — or to at least significantly delay — this payment, especially given the extent of Ecuador’s economic crisis and the resources it desperately needs to tackle the pandemic (Ecuador has one of the highest per capita COVID-19 death tolls in the world, and its economy shrunk by 9 percent in 2020). First, the government could request a new annulment process on the basis that Peter Tomka, the main arbitrator in the case, was simultaneously a full-time judge for the International Court of Justice (ICJ), which prohibits its judges from taking complementary income elsewhere. While this would apparently be a breach of the ICJ rules and not of the arbitration, the ICJ is an international public law institution of which both France and Ecuador are members.
The second pathway is for the government to request an exequatur procedure, a process by which local courts decide whether to execute a court decision from another jurisdiction. The case is unusual in that the arbitral award was issued after one of the states left the ICSID, and after terminating the BIT that is the basis for arbitration. Perenco would thus have to resort to a foreign court and then have that arbitration award recognized by Ecuadorian courts, according to the New York Convention, an international treaty that sets requirements for validation of foreign judicial decisions. But Lasso has already made it clear by rejoining ICSID that his government has no intention of contesting payment to the company.
It remains to be seen whether Ecuador will be able to go back to signing investment treaties with other countries. The Constitutional Court will again have a binding say and the court will find it more difficult to argue, as it did in the case of ICSID, that investment treaty ratifications do not require parliamentary approval. But the corporate interests promoting a return to a pro-ISDS agenda are formidable, and the lobbying to bypass parliamentary authorization is intense. Crony firms keen on participating in fire-sale privatizations, for example, are anxious to anchor new trade and investment treaties with ISDS chapters. And the Lasso government is eager to sell off as many state-owned assets as possible. It is no coincidence that, a week after the Constitutional Court gave the go-ahead for Ecuador’s return to ICSID, Lasso issued an executive decree that mandates the gradual privatization of the state-owned oil industry and highlights international arbitration as a cornerstone of his policy.
Civil society organizations opposed to current forms of ISDS that bleed countries in favor of capital should see Ecuador as a paradigmatic case of the struggle against corporate privileges running roughshod over protection of the environment and the rights of workers and people.
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