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41. Global Peace Index 2024

Author:
Institute for Economics and Peace (IEP)
Publication Date:
06-2024
Content Type:
Special Report
Institution:
Institute for Economics & Peace (IEP)
Abstract:
This is the 18th edition of the Global Peace Index (GPI), which ranks 163 independent states and territories according to their level of peacefulness, covering 99.7 per cent of the world’s population. Produced by the Institute for Economics & Peace (IEP), the GPI is the world’s leading measure of global peacefulness. This report presents the most comprehensive data-driven analysis to-date on trends in peace, its economic value, and how to develop peaceful societies. The GPI uses 23 qualitative and quantitative indicators from highly respected sources and measures the state of peace across three domains: the level of Societal Safety and Security; the extent of Ongoing Domestic and International Conflict; and the degree of Militarisation. This year it introduces a new measure of global military capability that incorporates military sophistication, technology, and battle readiness into a single measure. The report finds that many of the conditions that precede major conflicts are higher than they have been since the end of the Second World War. There are currently 56 active conflicts, the most since the end of Second World War, and with fewer conflicts being resolved, either militarily or through peace agreements. The number of conflicts that ended in a decisive victory fell from 49 per cent in the 1970s to nine per cent in the 2010s, while conflicts that ended through peace agreements fell from 23 per cent to four per cent over the same period.
Topic:
Security, Economics, Peace, and Armed Conflict
Political Geography:
Global Focus

42. Why the BRICS Summit in Kazan should be a Wake-up Call for the EU

Author:
Reinhold Brender
Publication Date:
11-2024
Content Type:
Policy Brief
Institution:
EGMONT - The Royal Institute for International Relations
Abstract:
This policy brief examines the growing influence of the BRICS in a multipolar world, as highlighted by their recent summit in Kazan, Russia, and the challenges to effective global multilateralism. Originally comprising Brazil, Russia, India, China, and later South Africa, the BRICS have recently expanded to include Ethiopia, Egypt, the UAE, and Iran. All BRICS members seek to reshape global governance to provide a greater voice for the Global South and strengthen South-South cooperation. However, internal divisions persist: China, Russia, and Iran view the BRICS as a platform to counter Western influence, while India, Brazil, and South Africa pursue ‘multi-alignment’ to diversify their global partnerships. This brief argues that, given the urgency of pressing global challenges, the EU should take the Kazan Summit as a wake-up call to develop and implement a strategy for engaging the Global South in the much-needed reform of global multilateralism. This effort is essential despite the reelection of Donald Trump as US President.
Topic:
Foreign Policy, Economics, European Union, Multilateralism, BRICS, and Strategic Partnerships
Political Geography:
Europe, Latin America, North Africa, and Asia-Pacific

43. From Carrots to Sticks, to Carrots Again? The EU’s Changing Sustainable Trade Agenda

Author:
Victor De Decker
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
EGMONT - The Royal Institute for International Relations
Abstract:
Although sustainability criteria include references to human, social and labour rights as well as broader environmental concerns, this policy brief will focus on measures related to carbon emission reduction in relation to the Paris Agreement. This policy brief consists of three parts. First, there will be an overview of how Trade and Sustainable Development (TSD) chapters have gained prominence in European Free Trade Agreements. The second part will be dedicated to the autonomous, unilateral EU initiatives the Carbon Border Adjustment Mechanism (CBAM) and the Corporate Due Diligence Directive (CSDDD). To conclude, there will be a brief analysis of how the EU is working within a multilateral setting on the issue of climate change. In 2015, the United Nations adopted the 2030 Agenda for Sustainable Development, a landmark framework renowned for its far-reaching vision encompassing 17 Sustainable Development Goals (SDGs) and 169 targets. These goals collectively constitute the “universal policy agenda,” aiming to address global challenges and foster inclusive economic growth. Notable among these goals is the promotion of sustainable international trade, identified as a pivotal policy instrument contributing to overarching SDGs. The 2030 Agenda positions international trade as “an engine for inclusive economic growth and poverty reduction” while actively contributing to the broader pursuit of sustainable development.
Topic:
Climate Change, Economics, European Union, Trade, Sustainability, and Energy
Political Geography:
Europe

44. EU Elections: National Democracy at Its Cornerstone?

Author:
Ward Den Dooven
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
EGMONT - The Royal Institute for International Relations
Abstract:
On the eve of the European elections, those who keep a keen eye already know that a big turnaround of the European hemicycle is to be expected, with more than 50% being newly elected. In a recent article, the secondary place occupied by the European elections was highlighted; in Belgium they can even be said to only rank as tertiary due to its collision with national and regional elections on the same day. Although up to 8 member states will see both national and European elections in 2024, this very much gives a unique context to the EU elections in Belgium. Its conclusions however were not new: although the federal government presented itself as radically pro-European, currently holding the Council of the EU’s rotating Presidency, in Belgium as well as abroad, the European election is inherently still very much national in nature: the limited space that is left for it between the other campaigns becomes confused through both themes and politicians being presented at other levels than they (currently) sit.
Topic:
Economics, Elections, European Union, Democracy, and Regional Politics
Political Geography:
Europe

45. Uganda’s Chess Game in Eastern DRC: With or Without M23?

Author:
Kristof Titeca
Publication Date:
06-2024
Content Type:
Policy Brief
Institution:
EGMONT - The Royal Institute for International Relations
Abstract:
Uganda has various economic, political and security interests in Eastern DRC. The latter is for example a vital export market for Ugandan products, and an important source of gold, Uganda’s most important export product. In this situation, a careful tactical game is played, in which Kampala seeks to protect these interests in Eastern DRC – for example from Kigali. This does not only involve a clear engagement with Kinshasa, but to a lesser extent also with M23. This is particularly the case because M23 is expanding (and keeping) its territory; creating an incentive for regional actors to engage with them.
Topic:
Security, Foreign Policy, Economics, and Politics
Political Geography:
Uganda, Africa, and Democratic Republic of the Congo

46. Labor Market Volatility and Worker Financial Wellbeing: An Occupational and Gender Perspective

Author:
Julie Yixia Cai
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
One emerging but underexplored factor that is likely to contribute to group racial earnings disparity is unstable work schedules. This is often detrimental for hourly workers when volatility is frequent, involuntary, or unanticipated. Using data from 2005-2022 monthly Current Population Survey and its panel design, this study follows a group of hourly workers across a four-month period to assess whether labor market volatility relates to their financial well-being, focusing on low-wage care and service occupations as well as female workers and workers of color. The findings are threefold: In general, during economic expansion periods, nonwhite workers often benefit more in terms of wage growth compared to their white counterparts. Second, net of other characteristics, on average, greater volatility is associated with lower earnings, and this is mostly driven by those holding jobs in low-wage service sectors and healthcare support roles. Last, the earnings consequences of volatility vary significantly by the type of low-wage jobs a worker holds and their gender and race, but this is only true when volatility happens in a job. Specifically, when working within the same employment spell, female workers, particularly those of color and those working in low-wage service and care jobs, earn significantly less when facing greater volatility than their male counterparts or those working in non-service, non-care occupations.
Topic:
Economics, Inequality, Finance, Labor Market, and Gender
Political Geography:
Global Focus and United States of America

47. Monetary Policy and Illiquidity

Author:
Jan Toporowski
Publication Date:
01-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The discussion of financial stability, and the role of monetary policy, is incoherent because there is very little agreement on what constitutes financial stability (and, by implication, instability) - exchange rate stability, asset price stability, absence of debt default. By implication, there is a gap between the claims of various authors to the general applicability of their respective analyses, and the actual applicability of their conclusions, let alone the usefulness of some of their policy recommendations. The paper argues that the key issue is the regulation of the liquidity of all financial markets, and not just that of the banking system, through the markets for government securities. The paper examines the sources of this liquidity in the financial portfolios of the private sector, and how that liquidity may be managed through the open market operations of central banks and the debt management operations of governments. An implication of this approach is yield curve control and the use of (government) debt management to control the liquidity of the markets. These elements of monetary policy have been neglected in theory and policy since the 1950s.
Topic:
Debt, Economics, Monetary Policy, Banking, and Liquidity
Political Geography:
Global Focus

48. Considering Returns on Federal Investment in the Negotiated “Maximum Fair Price” of Drugs Under the Inflation Reduction Act: an Analysis

Author:
Edward W. Zhou, Paula G. da Silva, Debbie Quijada, and Fred D. Ledley
Publication Date:
03-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The Inflation Reduction Act (IRA) of 2022 contained landmark provisions authorizing government to negotiate a “maximum fair price” for selected Medicare Part D drugs considering the manufacturer’s research and development costs, federal support for discovery and development, the extent to which the drugs address unmet medical needs, and other factors. This working paper describes federal investment in the discovery and development of the ten drugs selected for price negotiation in the first year of the IRA as well as the health value created through Medicare Part D spending on these drugs. We identified $11.7 billion in NIH funding for basic or applied research leading to approval of these drugs with median investment costs of $895.4 million/drug. This early public investment provided a median cost savings to industry of $1,485 million/drug, comparable to reported levels of investment by industry. From 2017-2021, Medicare Part D spent $126.4 billion (median $10.7 billion) for these products before rebates. Excluding two products for diabetes, Medicare Part D spending was $97.4 billion and the total health value created was 650,940 QALYs or $67.7 billion (WTP/QALY=$104K) representing a negative residual health value of -$29.7 billion (before rebates). We argue that a negotiated fair price should provide returns on both private and public investments in these products commensurate with the scale and risk of these investments, with the principal return on public sector investments being the residual health value (net price) accruing to those using the product. These empirical data provide a cost basis for negotiating a fair price that rewards early government investments in innovation and provides social value for the public.
Topic:
Economics, Health, Public Health, Pharmaceuticals, and Public Investment
Political Geography:
North America and United States of America

49. Tilting at Windmills: Bernanke and Blanchard’s Obsession with the Wage-Price Spiral

Author:
Servaas Storm
Publication Date:
04-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Bernanke and Blanchard (2023) use a simple dynamic New Keynesian model of wage-price determination to explain the sharp acceleration in U.S. inflation during 2021-2023. They claim their model closely tracks the pandemic-era inflation and they confidently conclude that “… we don’t think that the recent experience justifies throwing out existing models of wage-price dynamics.” This paper argues that this confidence is misplaced. The Bernanke and Blanchard is another failed attempt to salvage establishment macroeconomics after the massive onslaught of adverse inflationary circumstances with which it could evidently not contend. It misrepresents American economic reality, hides distributional issues from view, de-politicizes (monetary and fiscal) policy-making, and sets monetary policymakers up to deliver significantly more monetary tightening than can be justified on the basis of more realistic model analyses.
Topic:
Economics, Monetary Policy, Inflation, Macroeconomics, and Wages
Political Geography:
North America and United States of America

50. The Diffusion of New Technologies

Author:
Aakash Kalyani, Nicholas Bloom, Marcela Carvalho, Tarek A. Hassan, Josh Lerner, and Ahmed Tahoun
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
We identify phrases associated with novel technologies using textual analysis of patents, job postings, and earnings calls, enabling us to identify four stylized facts on the diffusion of jobs relating to new technologies. First, the development of economically impactful new technologies is geographically highly concentrated, more so even than overall patenting: 56% of the most economically impactful technologies come from just two U.S. locations, Silicon Valley and the Northeast Corridor. Second, as the technologies mature and the number of related jobs grows, hiring spreads geographically. But this process is very slow, taking around 50 years to disperse fully. Third, while initial hiring in new technologies is highly skill-biased, over time the mean skill level in new positions declines, drawing in an increasing number of lower-skilled workers. Finally, the geographic spread of hiring is slowest for higher-skilled positions, with the locations where new technologies were pioneered remaining the focus for the technology’s high-skill jobs for decades.
Topic:
Development, Economics, Science and Technology, Innovation, and Labor Market
Political Geography:
North America and United States of America

51. Implications of the Inflation Reduction Act for the Biotechnology Industry

Author:
Cody Hyman, Henry Dao, Gregory Vaughan, and Fred D. Ledley
Publication Date:
07-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
The Inflation Reduction Act of 2022 contains landmark provisions authorizing the government to negotiate the price of selected drugs covered by Medicare Part D. The biopharmaceutical industry has criticized these provisions as a threat to innovation arguing that reducing future revenues could disincentivize equity investment in biotechnology. This research examines the sensitivity of private and public equity investment in the biotechnology industry to drug price indices and market conditions from 2000-2022. The analysis shows that equity financing and valuation in the biotechnology industry were strongly associated with equity market conditions but not indices of either producer or consumer drug prices. These results do not support claims of an association between changing drug prices and the availability of equity capital to emerging biotechnology companies, which currently sponsor the majority of all clinical trials. These results add to evidence that the IRA may not have a negative impact on pharmaceutical innovation.
Topic:
Economics, Health, Inflation, Innovation, Biotechnology, Public Investment, and Inflation Reduction Act
Political Geography:
North America and United States of America

52. Scale and Scope in Early American Business History: The “Fortune 500” of 1812

Author:
Richard Sylla and Robert E. Wright
Publication Date:
08-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Fortune magazine began publishing annual rankings of U.S. corporations by revenue in 1955. Ever since, scholars and forecasters have analyzed changes in the Fortune 500 to help inform their judgments about industry concentration and the relative importance of different sectors of the economy. Unfortunately, earlier data are scarce, especially before the Civil War. Through extensive research we have created a sort of historical “Fortune 500” going back to 1812, ranked by corporate capitalization, which we share here. Numerous insights can be drawn from this dataset, including the historical dominance of the banking and finance sectors and the early importance of manufacturing. Perhaps the larger significance of being able to come up with a Fortune 500 for 1812, though, is the fact that even with a population of only about 7.5 million, U.S. already had more business corporations than any other country, and possibly more than all other countries put together, securing its role as the world’s first “corporation nation.” The ease of incorporating businesses released a lot of entrepreneurial energy that helped to build an ever-expanding economy and by the end of the 19th century, the U.S. would be the world’s largest national economy with tens of thousands of corporations.
Topic:
Economics, History, Business, and Industry
Political Geography:
North America and United States of America

53. Setting Pharmaceutical Drug Prices: What the Medicare Negotiators Need to Know About Innovation and Financialization

Author:
Öner Tulum and William Lazonick
Publication Date:
09-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
Mandated by the Inflation Reduction Act of 2022, the U.S. government through the Centers for Medicare and Medicaid Services (CMS) is negotiating with pharmaceutical companies over the “maximum fair price” of ten drugs in wide use by Medicare patients. Over the next few years, the number of drugs whose prices are subject to negotiations will increase. The pharmaceutical companies contend that a “fair” price would be a “value-based price” that enables the companies’ shareholders to capture the value that the drug creates for society. Invoking the dominant “maximizing shareholder value” ideology, the argument for value-based pricing assumes that it is only a pharmaceutical company’s shareholders who make the risky investments that fund drug innovation. Pharmaceutical executives and their lobbyists warn that a lowering of drug prices will reduce investments in new drugs. The purpose of this paper is to enable CMS negotiators to respond to these arguments by showing a) why drug-price regulation is required, given the relation between scale economies in supplying drugs and price inelasticity of drug demand; b) how the pharmaceutical companies with which they are negotiating prices are, in general, not using their profits from unregulated drug prices to fund drug innovation but rather to fund distributions to shareholders in the form of cash dividends and stock buybacks; c) that publicly listed pharmaceutical companies do not typically rely upon investment by shareholders to fund drug innovation; and d) that investment in drug innovation entails “collective and cumulative learning” in foundational and translational research that is both antecedent and external to the investments in clinical research that a pharmaceutical company may make to bring a safe and effective drug to market.
Topic:
Economics, Health, Finance, Innovation, Pharmaceuticals, and Medicare
Political Geography:
North America and United States of America

54. Good Policy or Good Luck? Why Inflation Fell Without a Recession

Author:
Thomas Ferguson and Servaas Storm
Publication Date:
09-2024
Content Type:
Working Paper
Institution:
Institute for New Economic Thinking (INET)
Abstract:
This paper analyzes claims that the Federal Reserve is principally responsible for the decline of inflation in the U.S. We compare several different quantitative approaches. These show that at most the Fed could plausibly claim credit for somewhere between twenty and forty percent of the decline. The paper then examines claims by central bankers and their supporters that a steadfast Fed commitment to keeping inflationary expectations anchored played a key role in the process. The paper shows that it did not. The Fed’s own surveys show that low-income Americans did not believe assurances from the Fed or anyone else that inflation was anchored. Instead, what does explain much of the decline is the simple fact that most workers nowadays cannot protect themselves by bargaining for higher wages. The paper then takes up the obvious question of why steep rises in interest rates have not so far led to big rises in unemployment. We show that recent arguments by Benigno and Eggertson that shifts in vacancy rates can explain this are inconsistent with the evidence. The biggest factor in accounting for the strength in the economy is the continuing importance of the wealth effect in sustaining consumption by the affluent. This arises, as we have emphasized in several papers, from the Fed’s quantitative easing policies. Absent sharp declines in wealth, the continuing importance of this factor is likely to feed service sector inflation in particular.
Topic:
Economics, Monetary Policy, Federal Reserve, Inflation, and Macroeconomics
Political Geography:
North America and United States of America

55. Russia and China in Central Asia: Potential For Direct Competition

Author:
Maximilian Hess
Publication Date:
04-2024
Content Type:
Special Report
Institution:
Foreign Policy Research Institute (FPRI)
Abstract:
China is now undisputedly the leading economic partner for the Central Asia region, with trade and investment continuing to increase despite Beijing’s economic slowdown. Russia is still the dominant political partner for the region, but its influence and ability to strong-arm Central Asian states has been significantly dented by the impact of Vladimir Putin’s full-scale invasion of Ukraine. Central Asian states are now able in tacitly criticize Putin’s actions without significant cost and some have taken advantage of the negative impacts of Russia’s international isolation and sanctions to strike beneficial deals, in particular Uzbekistan and Kazakhstan. Moscow remains content in its position, knowing that the lack of democracy in the region and dominance of elite networks in business and politics mean that regional states are still willing to turn to Moscow for political support, as witnessed in the Kyrgyz Republic in particular since President Japarov came to power in 2020. Tensions between Beijing and Russia have failed to emerge, at least publicly, although if the current trends continue the potential for direct competition may increase.
Topic:
Foreign Policy, Economics, Strategic Competition, and Regional Power
Political Geography:
Russia, China, Central Asia, and Asia

56. US-India Economic Ties: To the Next Level and Beyond

Author:
Aparna Pande
Publication Date:
10-2024
Content Type:
Special Report
Institution:
Hudson Institute
Abstract:
This executive summary outlines the key recommendations for policymakers that emerged from deliberations at the Takshashila Institution–Hudson Institute roundtable series “US-India Economic Ties: To the Next Level and Beyond.” Its recommendations are divided into four proposed areas for collaboration between India and the United States: trade and investment, ideas and human capital, technology, and methods and mechanisms.
Topic:
Economics, Science and Technology, Bilateral Relations, Investment, and Trade
Political Geography:
South Asia, India, North America, and United States of America

57. Understanding and Countering China’s Global South Strategy in the Indo-Pacific

Author:
John Lee
Publication Date:
09-2024
Content Type:
Special Report
Institution:
Hudson Institute
Abstract:
While the United States and advanced economies and democracies in Europe and Asia are hardening their views of and position against China, the latter is gaining much ground with respect to the developing economies of the Global South. Indeed, China increasingly demands that developing nations base their discourse and policies on approaches that Beijing supports, and many Global South nations are increasingly complying. In other words, a growing number of these nations have started to alter and adopt discourse and policies that better align with Chinese demands and preferences. In the Indo-Pacific, a region that will largely determine the future shape of the global strategic landscape, evidence shows that developing nations are absorbing Chinese norms and preferences and gradually adjusting their thinking and behaviors accordingly. China’s progress vis-à-vis the Global South—especially in the Indo-Pacific—relies on what material inducements and opportunities Beijing can offer. These are most successful when they prioritize rapid development and regime security over liberal economic rules and individual rights. Meanwhile, regardless of where the fault lies, many developing nations do not believe they have benefited as much materially or institutionally from the US-led order as they would like or expect. Members of the Global South often believe the Chinese narrative about the alleged failure of US-led globalization in the post-colonial and post–Cold War periods. For this reason, many in developing economies believe that the interests and values of these nations (or at least those of the regimes in power) better align with what China is promising than with what Washington is delivering. The US and allies such as Japan and Australia have to accept and respond to this reality. This report analyzes and assesses why and how China is making worrying progress when it comes to shaping and influencing the policies and actions of developing economies in the Indo-Pacific. It explains why this is a significant problem for the US and its allies. It then offers some recommendations to counter the Chinese Global South strategy in the region. In offering six recommendations, this report argues that the US can complicate China’s bid for leadership within the Global South, increase the cost and risk for Beijing, challenge and change narratives and discourse favoring China in the Global South, and compete more effectively in the normative and institutional context.
Topic:
Foreign Policy, Economics, and Strategic Interests
Political Geography:
China, Global South, and Indo-Pacific

58. The Global Impact of China’s Water and Related Environmental Problems

Author:
Thomas J. Duesterberg
Publication Date:
03-2024
Content Type:
Policy Brief
Institution:
Hudson Institute
Abstract:
The quantity, location, and quality of water resources in China have long been a distinguishing and even defining characteristic of its history. Records at least as far back as the Ch’in era in the third century BC note the presence of massive waterworks such as irrigation and transportation canals. Terraced rice fields in hilly areas in central and southern China remain iconic images of Chinese civilization. During a contentious and important debate in the mid-twentieth century, geographers and political scientists asked whether the erection of a “hydraulic society” was the explanation for what political scientist Karl Wittfogel identified as “oriental despotism.”1 The German-trained academic argued that the existential requirement to contain endemic flooding and move water from the massive rivers of central and southern China to agricultural areas necessitated an authoritarian system for deploying labor on the scale required for hydraulic engineering projects spanning the continent. Chairman Mao Zedong drily noted at the beginning of his reign that “there is a lot of water in the south and not much water in the north . . . borrowing some water would be good.”2 Mao was soon to unleash the massive workforce of China to renew and expand efforts over the centuries to get water to farmland, control flooding, and reengineer the landscape of modern China. Even without exaggerating the centrality of water issues for historical China, in the modern era water resources are clearly still vital to the country’s economic and ecological health. And hydraulic engineering projects have become increasingly important, both to China’s Asian neighbors and to the global environment. An important new survey of the “ecological history” of modern China concludes that “in growing from impoverished giant to wealthy superpower in seventy years, China has sacrificed whatever resilience its ecosystem once possessed. It has polluted and poisoned its air, water, and soil . . . it has turned forests into plantations and seen deserts expand . . . and has seen lakes come to resemble green paint.”3 Unfortunately, China’s ecological problems have increasingly had negative impacts outside its borders. China’s unprecedented geoengineering to move water from the south to the north is now imperiling both the water resources available downstream from Tibet and the Hindu-Kush mountains, and the economy and ways of living of literally billions of people. China needs ever more land to grow higher quality food and produce higher yields, which frees up land for housing its population. These efforts have led to deforestation not only in China but also in South America and South Asia. And the consistent choice of Beijing’s leadership to drive economic growth at the expense of environmental health has led to dangerous levels of water pollution and poor soil health in China. Environmental degradation has become a growing political issue in China, and its export of this problem has incited considerable international concern. This study explores these issues with a focus on water resources, and it outlines the regional and global impacts of Chinese policy. The study concludes with a discussion of China’s ability and ambition to address these problems as well as how affected countries can help move Chinese leadership toward a more constructive and cooperative effort to develop a solution.
Topic:
Economics, Environment, and Water
Political Geography:
China and Asia

59. Tokyo Has an Opportunity to Become a Financial Hub

Author:
Mark Siegel
Publication Date:
02-2024
Content Type:
Policy Brief
Institution:
Hudson Institute
Abstract:
On his September trip to the United States, Japanese Prime Minister Fumio Kishida attended the United Nations’ annual General Assembly session, and later gave a well-received speech at the Economic Club of New York. His remarks included a comment about how his administration was actively considering a series of policy steps intended to reinvigorate Tokyo’s place in the global financial system; raise Tokyo’s profile as an important financial hub for Asia; and implicitly, regain market share that had been long lost to Hong Kong, and more recently to Singapore. The prime minister’s intentions are laudable, and his suggestions are worth taking seriously. In any case, the proposals under consideration are generally good for financial markets in Tokyo. Cynics will ask whether the horse has left the barn. In a world where continuous face-to-face interaction is less and less necessary for financial transactions, it is fair to ask what it really means to be a financial hub in the twenty-first century. But Japanese officials are not wrong to be concerned about revitalizing Tokyo as an international financial center. Let’s start by acknowledging that the Japanese government—including the prime minister’s office, the Ministry of Finance (MoF), the Financial Services Agency (FSA), and other official bodies—is serious and prepared to take steps to make Tokyo an attractive place for international financial firms to situate their Asian headquarters. After years of asking market participants for recommendations, policymakers have in hand a menu of policy adjustments that make a lot of sense. The list is long, with proposals ranging from offering official business documentation in English, to having special one-stop and fast-track approval processes, to adjusting tax law. Adjustments to tax law are a major issue: for example, the creation of a temporary tax resident status, relaxation of exit tax rules for foreign nationals, and adjustment of tax rules related to the transfer of overseas assets are constructive, long-standing suggestions. Similarly, adjustments to immigration rules related to foreign domestic workers would make it easier for expats to replicate some of the lifestyle benefits that they enjoy in other areas of East Asia.1 Some of the proposals are easy-to-implement, low-cost, measures that would make life less difficult for foreign firms and expats who want to make Tokyo a regional base. And some of them (e.g., major changes to financial sector law and regulation) are harder to imagine, but possible. The three following observations can be made. First, essentially all of the world’s major financial centers of the twentieth century had common law–based legal and regulatory systems. Japan, like France, has a civil law–based system. This difference matters. Both systems function smoothly in the operational sense, but international finance has been dynamic precisely because it rests upon a legal framework that tends to be permissive with guardrails, as opposed to restrictive with an only-allowed-with-permission structure. The point here is not to litigate the virtues and failings of the world’s two most prominent legal systems. The point is that the Japanese government should be honest with itself about the legal and regulatory norms that it collectively thinks of as Japanese, in the context of attracting foreign financial firms to Tokyo. The right kind of policy shifts could be transformative. That said, from a political perspective, some of them will appear to be very challenging. Second, timing matters, and now may be the right time to take policy risks; a window of opportunity may be closing. The reabsorption of Hong Kong into the People’s Republic of China that started under Carrie Lam is now well advanced, and the city has gone from being the preeminent regional hub for Asian finance to being something much less. It continues to lose vitality. A city that had Anglo law with Chinese characteristics (and geography) is now a different place, having adopted Chinese rules with a superficial Anglo form. That transformation has been an unhappy experience for the cosmopolitan residents of the former crown colony, but it is an opportunity for competing financial centers. Singapore, to pick the obvious example, has benefited from Beijing’s heavy-handed approach to Hong Kong. With common law already in place, an existing and well-developed financial community, and not-dissimilar geographic advantages, Singapore is a natural option for regional headquarters and staff as the Hong Kong business environment deteriorates. But Singapore is physically smaller than Hong Kong, and if the latter occasionally felt like the Chinese version of the financial Wild West, the former feels more like a very buttoned-down, engineered community. So while some of what had been Hong Kong’s centrality, and commercial verve, has moved slightly west, a lot of it has been dispersed far and wide. Dubai has picked up some of the slack, and no doubt some of the business has moved back to London and New York—maybe as an interim step, or maybe for good. There is no preeminent Asian financial hub today. It is still in play, and that is a window of opportunity. Third, the metaphorical pie may be shrinking. What if—in a post-COVID world—a central fact of our new environment is that financial centers, like money itself, have been substantially dematerialized? Even the undisputed global financial centers—New York and London—have experienced some of this new reality. Bank and broker-dealer headquarters are no longer beehives of activity, creativity, and deal-making. They are more like corporate conference centers and operation hubs, only housing activities that require collective physical groups on an as-needed basis. Those activities should not be devalued, but these places are relatively empty shells compared to the Before Times (pre-2020). The large banks’ financial statements tell us that these changes have not hobbled actual financial activity, but the staff does not come to the office every day, and does not want to.
Topic:
Economics, Finance, Banking, and Regional Power
Political Geography:
Japan, Asia, and Tokyo

60. Pax Economica: An Interview with Marc-William Palen

Author:
Seokju Oh and Marc-William Palen
Publication Date:
03-2024
Content Type:
Commentary and Analysis
Institution:
The Toynbee Prize Foundation
Abstract:
In his new book Pax Economica: Left-Wing Visions of a Free Trade World (Princeton University Press, 2024), historian Marc-William Palen offers a counter-history of free trade as an ideology and policy. In the nineteenth century, before it became a cherished possession of the Right, free trade was proudly claimed as their own by Left-wing activists, intellectuals, and politicians, those who were unswervingly committed to equality for all and peace among nations. Palen recovers this forgotten history of the “Left-wing free traders” of the late-nineteenth century, showing how liberal radicals, socialists, feminists, and Christian pacifists all viewed free trade as the key antidote to the social problems they encountered. Palen also upends the conventional understanding of the world of the late nineteenth and the early-twentieth centuries and argues that the fin-de-siècle was not the “Golden Age’ of the First Globalization, but actually the “Iron Age” of market enclosures and imperial competition. In February 2024, I had a great pleasure to discuss Pax Economica with Palen. Below is an edited version of the conversation.
Topic:
Economics, Globalization, Markets, History, Free Trade, and Interview
Political Geography:
Global Focus