Tuesday, 23 April 2013

Beginning a green transformation: a development issue in Japan

By Tomoko Kunimitsu

On 10th March, ‘The 4th Revolution Summit’ was held in Japan. It was an event which aimed to accelerate the shift to renewable energy in Japan, held on the day before the 2-year anniversary of the disastrous earthquake and the ensuing accident at the Fukushima Daiichi Nuclear Power Plant. The name of the summit was inspired by a German film named The 4th Revolution – Energy Autonomy.

A number of activities to support this transformation in the energy system have been taking place in this country, both locally and nationally over these 2 years. On a local level, the film, which suggests that renewable energy is the sustainable energy source which could kick-start the ‘green’ revolution, has been shown in 35 out of 47 prefectures in Japan. Many of the screenings were held by voluntary citizens and NGOs. Also, more and more citizens have organised/participated in demonstrations to protest nuclear power in many parts of Japan. Japanese people are becoming to know that we are a part of the change for our future.

At the national level, the government introduced the new feed-in-tariff system in July 2012 in order to increase an incentive for setting power-generating facilities for renewable energy. Some private firms, such as Softbank, have already started focusing on this area to taking advantage of the potential opportunity. As a result, these various forms of interests in renewable energy – from citizens, firms, and the government – led to Japan’s increased capacity to produce renewable energy, adding 1,178 megawatts in just 9 months, from April to December last year.

On the other hand, the shift from nuclear power to renewable energy may be a challenge to the huge investment in the past. More than 50 nuclear power plants have been operating in Japan are a result of investments made since 1960s. The investors range from the government and large firms to ordinary citizens. Many rural areas which are home to these nuclear power plants rely hugely on the industry which has stimulated the regional economy by receiving subsidies and creating jobs.

In fact, when Japan stopped all the nuclear power plants after the meltdown in Fukushima, some people living in the very core area of one nuclear power plant in Fukui prefecture allowed its reopening as the regional economy needed plant-related jobs. One citizen said, “we had allowed ourselves to become addicted to nuclear money, until Fukushima broke the spell”. It was a very different reaction from the demonstration which took place to oppose the reopening. The government’s decisions also reflect this difficulty. While drawing up incentives for renewable energy, it also decided to review plans to abandon nuclear power, made by the previous administration. These contrasting events show not only how seriously the investment of the past affects the future even decades later, but also that we didn’t have alternative options that could reduce the dependency.

The green transformation seems to be more than a shift in energy system and a tool of economic growth – it is a development issue in Japan. Japan is struggling to find a direction to go. The current situation mentioned  has been described as ‘Japan’s “nuclear mafia” vs. a “communist” renewables policy’. The process of green transformation is challenging the established socio-economic structure and perhaps, unfairness behind that: who produces energy for whom? How should the rural economy be maintained? How can the whole Japanese society reduce the over-dependence on one big investment continuing from the past? In both top-down and bottom-up approaches to expand renewable energy, everyone should illustrate a broad image of development of this country – what we will pass on to the next generation.

Tomoko Kunimitsu is working towards her MA Globalisation and Development at the Institute of Development Studies.

Friday, 19 April 2013

Margaret Thatcher's lesson for the BRICS

By Noshua Watson

Margaret Thatcher’s legacy will always be judged by the consequences of economic liberalisation. In the FT, Erik Berglof, Chief Economist of the EBRD, discusses the consequences of liberalisation and privatisation in eastern Europe after 1991 which were influenced by Thatcher’s policies. He writes that Thatcher’s idea of using EU accession as encouragement for economic reform led to more balanced transition, higher growth and lower economic inequality in countries like Czech Republic and Slovakia. In countries like Ukraine and Russia, where EU accession was not an option, highly-inequal, elite-dominated economies emerged.

Berglof argues that Thatcher understood the link between political context and liberalisation policies, although that was not fully appreciated by those who followed her. He encourages India and China to continue moving away from directing the resource allocation and investments of private enterprises, while promoting good governance, competition and equality.

Thatcher’s lesson for the BRICS is that domestic policy and foreign policy go hand in hand. It is a tricky game for the BRICS to play both donor and recipient. As the BRICS consolidate as a bloc and expand their own regional influences, they need to focus on domestic growth and stability as well as growing their foreign aid budgets. Whilst maintaining macroeconomic growth, the BRICS still need to continue to reduce poverty by attracting skilled jobs, investment in infrastructure, better regulation and attracting FDI. The aim of separating the State from the private sector was to get the State out of the business of choosing ‘winners’ and ‘losers’. As Mrs Thatcher learned, the same principle holds when it comes to people.

Wednesday, 10 April 2013

A financial sector to serve development

By Stephany Griffith-Jones
A guest post by the Financial Markets Director at the Initiative for Policy Dialogue Columbia University

The financial sector should have two main functions.

Firstly it should serve the needs of the real economy. Secondly, it should help manage and mitigate risk.

In the last three decades the private financial sector has done neither. It has not provided sufficient sustained finance for key sectors like the green economy, SMEs and infrastructure.Furthermore, instead of mitigating and managing risk, it has created risk.

In recent decades numerous crises happened after financial markets were liberalised and many regulations stripped away. This was seen with the 1980s debt crisis in Latin America, which led to its lost decade of development. These crises continued in East Asia in 1997/8 as well as in numerous other countries. Since 2007 there has been a major crisis in the North Atlantic region.

Financial crises has become the new normal

This is not inevitable. When the financial sector has been well regulated and controlled - and when well-run public banks have played an important role in this - the financial sector has played a positive role to support and not undermine the real economy. Examples of this include post-World War II USA and Europe.
Currently a lot of the focus of the financial sector is still on making exorbitant profits and salaries for its employees. Instead countries need a far smaller, simpler, transparent and accountable financial sector focussed on lending to the real economy. If this transformation does not happen it will make it very difficult to finance sustained and equitable growth. A weakened and crisis-prone real economy will continue to serve the interests of the financial sector and not the reverse as it needs to be!

So what should be done? 

Firstly, the financial sector needs to be regulated in a way which would have prevented the current crisis - and future ones - from occurring. This includes comprehensive equivalent regulation of the entire financial sector, including the shadow unregulated banking sector, which in the US and Europe is larger than the existing regulated banking sector.

Secondly, regulation of capital adequacy, leverage and liquidity must be rigorous and counter-cyclical. It must be counter-cyclical to compensate for the natural boom-bust pattern of financial markets and banks, which has been damaging to the real economy

Thirdly, speculative activity should be limited - and ideally eliminated - where the risks created outweigh any possible benefits to the real economy. Banks should also be divided. The more important part of banking, so called utility banking, should be separated completely from more risky activity, as was done in the 1930s with the Glass Steagall Act

Lastly, remunerations for bankers should be reformed to significantly reduce their level of income. Bonuses could be eliminated - or be linked to long-term performance - instead of rewarding short-term gains. If the profits and remunerations in the financial sector were reduced this would also limit the unhealthy power and influence that the financial sector has over regulators and politicians. 

As a complement to regulating tightly and comprehensively the private financial system, the time has come for a significant expansion of efficient public banks. They can finance investment in sectors poorly served by the private financial sector, such as SMEs and the green economy. Where markets fail, governments need to act effectively. There are also many positive examples of public banks around the world, such as Brazilian Development Bank (BNDES).

Where banks have been nationalised due to the crisis, often at high cost to the taxpayer, they should be used to serve the public interest. Where public banks do not exist, they need to be created.

Stephany Griffith-Jones is giving the Sussex Development Lecture "Rethinking finance for development in the light of the global financial crisis", on Wednesday 10th April 2013. Follow Professor Griffith-Jones on Twitter

Wednesday, 3 April 2013

Freedom of expression and the right to information in Latin America

By Carlos Fortin

A debate is raging in Latin America about government interference with freedom of the press. It was triggered by a proposal put forward in January by the so-called ALBA Group of countries – basically Bolivia, Ecuador, Nicaragua and Venezuela - to downgrade the activities of the Special Rapporteur for Freedom of Expression of the Organization of American States (OAS). The proposal was opposed by other governments and a number of NGOs. Prominent among the latter was the Inter American Press Association (IAPA), a business association that includes all major newspaper chains in the Western Hemisphere. IAPA has also consistently denounced the absence of freedom of the press in Cuba as well as de facto government pressures on the media  -in particular the discriminatory use of public advertising – in countries such as Argentina, Ecuador, Guatemala, Mexico, Nicaragua, Panama and Venezuela. The ALBA proposal was defeated at a special meeting of the OAS on 22 March.

So far, one would say, so good. However, IAPA has also recently been involved in a considerably more questionable effort at supporting opposition to proposals from some Latin American governments to set legal limits to the concentration of ownership in the media. Specifically, the Argentine government introduced legislation in 2009 limiting the number of licences for radio and television broadcasting that could be held by a single individual or company; it is currently involved in a judicial controversy with the main newspaper chain, Clarin, which is challenging the constitutionality of the law before the Argentine Supreme Court. The Ecuadorian and Honduran governments are proposing similar legislation.

IAPA's reaction in effect has been to endorse the view that the proposed measures are contrary to freedom of expression. In the case of Argentina, the Resolution adopted at the IAPA Midyear Meeting in early March 2013 cites approvingly Clarin's contention that the media law ‘violates constitutional rights, among them the freedom of expression, equality before the law, the right to property, and the ex-post-facto principle, among other fundamental guarantees’.

The problem with this stance is that it ignores the collective dimension of freedom of expression. This notion goes back to John Stuart Mill who in his Essay on Liberty (1859) had already recognised that freedom of expression should not only be understood as an individual right but as part of a social mechanism that allows political decisions to be balanced and right.1 The view has been adopted by modern democratic theory under the concept of the right to information: the right of society to have a pluralist media system whereby all viewpoints and ideas can be known and compared.2  Concentration of the ownership of the media conspires against pluralism, a point that was central to the debate in the UK concerning the 2010-2011 failed attempt by News Corporation and its owner Rupert Murdoch to gain full control of Sky TV.3

On the strength of that rationale, most advanced Western democracies have special regimes limiting concentration in the media that go beyond the general anti-monopoly regulations. It is odd to suggest that governments in Latin America that are trying to introduce such regimes are somehow departing from the route to democratic development. And this, of course, is not to condone other shortcomings those governments may have in their approach to the media, such as discriminatory treatment of the opposition press.

1. John Stuart Mill, On Liberty and Other Essays, Digiread.com Publishing, 2010, p. 33.
2. I elaborated on this in a paper published in 2011: ‘Derecho a la información y propiedad de los medios de comunicación: teoría, normativa comparada, problemática chilena’, Revista de Derecho Público, Santiago, Universidad de Chile, No. 75, second semester, 2011, pp. 171-241.
3.‘British media join forces against Murdoch takeover of BskyB’, The Guardian, 11 October 2010.