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7/12/2020

Economics of worldwide Reparations

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$1 billion and forty-four million acres given to Alaskan natives in 1971, $20,000 each to 60,000 identified victims to Japanese Americans post World War 2 by the United States and more than $800 million to the State of Israel on behalf of the German Weidergatmachung in 1952. All of these transnational payments are classified as reparations. Reparations have long held a moral incentive, a mechanism for nations to reconcile with their histories of racial oppression and marginalization, however the implementation of such policies remains largely controversial. Utilizing economic analysis, the form and magnitude of these financial policies can become clearer, with the aim of reducing the persistent gaps in income on the basis of race internationally. 

The need for certain measures to compensate for years of state-sanctioned apartheid in nations like the United States is rather obvious, with historic injustices still pervading multiple aspects of modern society. Research conducted by Duke University found that while Black citizens constitute 13% of America’s population, they hold less than three percent of its wealth. Within modern life discrimination on the basis of race is demonstrated in employment, healthcare and education among others. 

However, the questions that now remain are: is this policy enough to remedy the systematic inequalities and what would the logistics look like? While some political candidates in the United States champion a lump-sum payment to eligible citizens, and others lobby for guaranteed schooling or medical insurance, it is imperative to prioritize programs which foster longevity in financial prosperity. In the case of lump-sum payments, Professor William Darity, one of the foremost academics advocating for reparations, found that lump sum fees could actually result in an absolute decline in Black income as a whole. The causal analysis which supports this is one in which since the purchasing power of Black Americans increases, they consume non-Black goods more, thus increasing the relative income of non-Black producers. However, a viable option would be the redistribution of national wealth as demonstrated in Malaysia to build corporate ownership within the communities who were historically marginalized. Within Malaysia, shares of stock were purchased by the state and placed in a trust for allocation to native Malays. In addition, the implementation of more public trust funds which provide grants for asset acquisition or employment programs would achieve a similar, long-term outcome. The critique of such mechanisms is that they are deemed to be “overly paternalistic” as specific grants would limit the choice of those citizens, whereas a lump sum would arguably provide more individually tailored benefits. 

With these initiatives arises the pressing issue of who will pay for these reparations? How will the national economy be impacted? Public Finance Theory can argue that the parties who were not historically marginalized could finance the transfers by paying additional taxes, or governments could issue bonds. According to Thomas Craemer from the University of Connecticut, within the United States the reparations owed to descendants of slaves would be at $5.9-14.2 trillion, in 2009 dollars. With the U.S. federal budget estimated for the 2020 fiscal year to be 4.79 trillion dollars, it is imperative to find a robust mechanism which not only acts as a blanket solution towards temporary reconciliation but rather working towards ensuring long-term financial stability. 

It comes a time when nations can no longer pacify decades of racial oppression and brutality without truly addressing the root causes and systemic injustices. Financial stability is a foundational step for long-term change, whether or not reparations are adequate in accomplishing that is yet to be determined. However, utilizing economic principles to ascertain the eligibility, form under which these policies would be executed and financing mechanism will prove to be vital in the coming years

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6/29/2020

Billionaire Altruism Amidst Coronavirus

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Billionaire philanthropy has always held a fragile relationship with civil society organizations and the larger public, yet recent times have called into question the validity and intentions behind their philanthropy. By definition, billionaire philanthropy is the desire to promote the welfare of others through generous donations of money which come from the “elite” or richer members of society such as Bill Gates, Mark Zuckerburg and Jeff Bezos. There are a few primary issues with such acts: the non-altruistic nature of billionaire donations, the exacerbation of economic inequality and the transformation of corporate power into political power. 

Economic rationality assumes that people behave selfishly and in many cases of billionaire philanthropy this is demonstrated. By donating a rather small percentage of their overall income, these acts are merely conducted out of personal benefit or the sense of moral righteousness gained. The issue with this is that their philanthropy then becomes an exercise of power, an attempt to direct private assets for social influence or optics. In a Washington Post survey of the United States’ 50 wealthiest people and families, with a collective net worth of nearly 1.6 trillion dollars, found that their publicly announced donations amounted to $1 billion during COVID-19. In conversion, this accounts for merely 0.1% of their combined wealth. While some like Bill Gates and Jack Dorsey have spearheaded a public campaign for scientific research, medical care and financial donations, others like Jeff Bezos, the wealthiest man in the world gave $100 million to Feeding America and $25 million for All in WA. In comparison for the median American, Bezos’ giving is the equivalent of donating $85. The facade of altruism that is displayed by billionaires through “promises” of donations is the primary issue. In an ideal world, such large donations and wealth can serve as the democratic society’s “risk capital”, engaging in those risky, long term bets which cannot be made by governments with civil society organizations. However, the lack of engagement and disproportionate spending has led ample to question their preconceived notions in the debate about income inequality. 

Income inequality has long-standing implications upon the overall economic growth of a nation, and with billionaire philanthropy comes massive tax breaks which feed into the existing vicious cycle. According to Emmanuel Saex and Gabriel Zucman, economics professors at the University of California at Berkeley, the very richest Americans now pay a smaller share of their income in taxes than they have at any time since the 1910s. The resulting issue is that billionaires give about 1% of their wealth to charity every year, as they believe that philanthropy’s role is to come up with solutions the government cannot achieve, thus providing to mitigate immediate human suffering, for example global pandemics, is not fruitful. 

Indeed, there exists strategic philanthropy which can sustain various sectors and impact the economy in a positive manner, however it is largely overshadowed by the taxpayer-subsidized acts of philanthropy. In order to rectify this situation, reform policies should promote incentives and encourage broader giving by more segments of society, they should protect the true interests of the general public and ensure that funds are being allocated in an efficient manner. As Warren Buffet once said, “If you are the luckiest 1% of humanity, you owe it to the rest of humanity to think about the other 99%” and in the days to come it will be vital for civil society to achieve exactly that.

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5/31/2020

Uncertainty in Hong Kong

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This past week marked a turning point for the Asian financial hub with new measures from Beijing within Hong Kong and retaliation from the United States. Traditionally known as Asia’s financial capital with the highest concentration of banking institutions in the world, Hong Kong’s stock market went into its sharpest plunge in five years, leaving Hong Kong’s future and China as a whole uncertain. 

This peril comes from Beijing, which last Thursday proposed a draft order released by China’s National People Congress to enact national security laws to oppose “any foreign or overseas forces interfering in the affairs of the Hong Kong Special Administrative Region in any fashion” and to “stop and punish foreign and overseas forces’ use of Hong Kong to carry out spearatist, subversive, infiltrative or destructive activities.” At stake is the semi-autonomous status of Hong Kong to govern with an independent judiciary, enable free expression and low financial and trade barriers globally. Thus, in choosing to enact the national security legislation calls into question the validity of the “one country, two systems” constitutional agreement. 

However, the economic implications are projected to be exacerbated with the deteriorating bilateral relations between the United States and China. According to Fred Hu, a prominent investor and former chairman of Goldman Sachs’ Greater China business, “investors worry that a clash between the superpowers would consequently impact Hong Kong’s position as a bridge between China’s powerful economic engine and the rest of the world.” With Hong Kong known to be a safe haven for civil society and the pursuit of expression and social justice, this commandeering law threatens the very principles Hong Kong resonates. In doing so, National Security Advisor for the United States, Robert O’Brien, foreshadowed potential trade sanctions and revoking the territory’s special status within United States law. At a time when Hong Kong requires foreign direct investments, the implementation of such a policy would undermine the free enterprise and democratic system at hand, endangering relations with corporations and governments. By challenging Hong Kong’s autonomous market puts at risk the appeal for it to be a place to do business, thus in turn hindering Chinese economic growth.. 

Within the United States, Senators Chris Van Hollen and Pat Toomey have tabled a bipartisan bill to sanction both officials and entities that enforce said national security regulations. By sanctioning financial institutions, it opens a new front to the already fractious relationship with both China and Hong Kong. In the coming weeks, it will be imperative for the international community to recognize the gravity of the situation at hand, being the future of international banking, accumulation of trade, commerce and technology. It can be expected that the suppression of dissent, curtailing freedom of expression and enforced detainment will be executed under the notion of national security. At such a time, the reactions of intergovernmental bodies and superpowers will be crucial in determining the operational management and environment for corporations within Hong Kong. If Hong Kong aims to remain the financial center they are today, international cooperation will not only be crucial for Hong Kong’s future, but also China as a whole. If left unaccomplished, the largely volatile and unpredictable political environment could devastate financial economies around the world.  

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4/27/2020

Economics of Supply Chains during Covid-19

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4.1 million Bangladesh garment workers. All of whom’s futures remain uncertain due to COVID-19. 

This pandemic brought economic instability, causing millions of workers in garment factories across Asia and elsewhere to find their jobs to be highly vulnerable. The impact of such is two-fold, as firstly, these workers, primarily women who are crucial in keeping their families out of poverty, are no longer financially secure. Due to the seasonal nature of fashion, many companies are liquidating unsold spring and summer items to discount retailers in order to mitigate a company deficit from occurring. Currently, more than one million Bangladesh workers have already been fired, a number due to rise as other nations such as Cambodia, India and Myanmar follow suit. The impact of this is on both the overall GDP of the nation, as the garment industry composes 16% of the nation’s GDP, along with the individual quality of life. In order for a large scale economy to function, it is imperative that constant transactions are happening; if purchasing power for the majority decreases, so does investment in the economy. Furthermore, according to the Bangladesh Garment Manufacturers and Exporters Association, fashion companies have canceled at least $3 billion in orders from garment factors, equivalent to a full month of exports based on prior data. In a larger context, the South Asian economy is disproportionately reliant on the apparel industry to sustain its economy. Garments make up roughly 80% of Bangladesh's exports as per Trading Economics and generated more than $30 billion in 2019 according to the country's Export Promotion Bureau. A primary concern in regards to fiscal policy is the lack of federal reserves within such nations, leaving government loans to be an uncertain mechanism to pay workers. 

However, the impact of unemployment extends beyond Bangladesh’s industry. Nations such as Cambodia, India and Myanmar play a crucial role in the overall supply chain as well. Many raw materials and human capital stem from such nations, and due to the internationally interconnected nature of the garment industry, this global shutdown holds the potential to devastate the general economy. It is imperative that, in these times, governments and financial institutions operate with a collaborative approach to ensure there are enough financial resources to keep supply chains solvent and workers employed. Initiatives such as fully funding loans for retailers or deferring tariff payments are two potential options for governments to implement. A recent statement by the International Organization of Employers indicates a collective approach to mitigate the loss of jobs and income and strengthen social protection within supply chains. 

It is imperative to understand that supply chain practices are an ever-changing equation, yet in upcoming times, governments and corporations must take proactive and reformative steps. To reduce the inherent inequalities built within supply chains while ensuring transparent regulations in the garment sector’s buying practices and labor relations, action must occur.

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3/26/2020

Covid-19: An American Political Epidemic

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Over the past few weeks it has become evident that covid-19 does not abide by national boundaries, political structures nor social values. Yet, each of the 177 nations impacted seems to have their own political agenda with every public health decision made. An outbreak of this caliber reveals the values and priorities of each society, with the divisive politics of the United States coming under scrutiny. While the pandemic calls for national unity, the response has been one of discordance, in part due to the partisanship of the American government. 
 
A Pew Research Center study released on March 18 found varying beliefs between Democrats and Republicans, with 59% of Democrats - and 33% of Republics - deeming the virus to be a major threat to U.S. citizens. These views oppose those of epidemiologists who have warned that the pandemic could impact millions, regardless of political party or geolocation. This disparity of concern is translated into varying responses from blue cities and states, who are moving more aggressively, while more conservative communities deem this to be a foreign problem. There is evidently a meaningful gap between Democrats and Republicans, being reinforced by the direct response of the United States President. 
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 The current federal response threatens President Trump with the same outcome which undermined predecessors such as George Bush post-Hurricane Katrina or Jimmy Carter with the Iranian hostage crisis: an American realization that cultural and ideological affinity simply is no longer sufficient for a successful presidency. Once again, the Trump administration has taken a minimization approach, one in significant contrast to that of China and Italy. Restrictions are only recently being placed, with partisan beliefs delaying timely and adequate responses. The administration has also used this pandemic to advocate for tighter border control and nationalist policies. In deeming Chinese measures to be “draconian and aggressive”, conservatives are reinforcing an ideological divide on a global scale. 

Nevertheless, it is imperative to understand that the balance between individual rights and public safety is an ever-changing equation. Public health methods are universal and regardless of political, economic or cultural structure they hold one purpose: human welfare. The challenge now remains on President Trump to convince the public that his administration is making equitable and just decisions in the short term while preserving economic and medical interests in the long term. Nations must realise that now is time to place politics behind public health, to strengthen economic relations between nations and to provide the right medicine not only for people but the global economy. ​

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3/14/2020

Turmoil in OPEC

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The Organization of Petroleum Exporting Countries (OPEC)  has long been a partnership of compromise, yet Monday’s oil price plummet indicates Russia has finally had enough. In order to mitigate oversupply and rebalance the global markets Saudi Arabia called for production cuts, to which Rosneft, Russia’s state-owned oil company, has refused to engage with. Calling it “masochism”, Rosneft head Igor Sechin argues that with every production cut Russia is forced to do, portions of market share simply return to American shale oil. However this rapid increase in Russian production has led the value of the Russian Ruble to plummet, with the currency hitting its lowest level in more than four years on Tuesday. However, what is perhaps most concerning is the promptness and aggressiveness of the Saudi Arabian response. Saudi Arabian Aramco vowed on Tuesday to produce 12.3 million barrels of oil per day in April, exceeding company capacity by 300,000 barrels. In a global sense this abundance of oil with unwavering demand has already exemplified the rapid decline in oil prices. Russia chose to compete over compromise, leaving not only the Saudi Arabian market harmed but also the global oil economy. Effects of this price war are seen with the value of US crude oil plummeting 26%, the worst value since 1991, resulting in US shale companies to cut production.

Nevertheless, it seems as though this response from Russia stems from the coercive sanctions policy that America’s booming economy has enabled. Three weeks ago Donald Trump announced sanctions against a subsidiary of Rosneft in response for its support for the Venezuelan Maduro Regime, leading Russian officials and Russian oil to become increasingly unstable. Yet amid all of this loss Igor Sechin seems to have benefited. This conflict has allowed for nationalist Russian rhetoric to popularize, with the intention to penalize the United States regardless of who gets caught in the crossfire. The United States and Russia relationship has been an immensely fragile one and the new OPEC recommendations for production cuts has simply opened the window of opportunity for influential, nationalist officials such as Sechin. 

The impact of such oversupply goes beyond the microeconomic lens and holds the potential to devastate global economies. Considering the recent US-China trade war along with COVID-19 impacting imports and exports, the United States remains an extremely vulnerable actor. On the other hand, Russia is relatively well positioned to withstand the impact of falling oil prices with reserved funds in place, however can severely  jeopardize long term economic stability. It is imperative to understand that in order to preserve the oil industry as a whole the convenient and compromising nature of OPEC must be restored, otherwise a prolonged war of attenuation could have devastating economic consequences for all involved. 

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1/28/2020

Economic impact of the coronavirus

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The dawn of the new decade has been accompanied with the spread of a deadly new virus, an unprecedented coronavirus originating from the Wuhan area of China. What began as a few cases of respiratory illness within Wuhan has now led to 25 deaths across the globe. In addition to the health effects, the impact of this virus extends to the healthcare industry and affects a broader scope of the global economy. 

Financial markets around the world have been disrupted by this outbreak, Wuhan being a prominent car manufacturing city and center for economic transport. With the Chinese economy already experiencing fragile conditions, a result of the US-China trade war this outbreak holds the potential to entirely disrupt the international supply chain, specifically within tourism, retail and automotive industries. Furthermore, with the Wuhan virus appearing on the eve of Chinese Lunar New Year, arguably the largest mass annual human migration it holds a direct impact into the Chinese economy. With over 400 million people travelling through China at this time, the event has become a significant opportunity for European luxury brands, with China representing 35% of global income in this sector. However, considering the governmental lockdown of four major cities and almost 20 million people, this calls into question the economic stability that remains. 

In an anecdotal sense, the SARS outbreak held similar outcomes, yet in larger proportions as the country’s economy at the time was much smaller yet exponentially growing. The respiratory syndrome virus was responsible for 774 deaths worldwide, with the economic implications becoming long-lasting. In a study conducted by economists Jong-Wha Lee of Korea University and Warwick McKibbin of Australian National University concluded that the “fallout from the disease would continue to dampen activity and marginally depress investment in China and Hong Kong for the next decade”. However, the key component acting as the deciding factor in the impact on global markets depends on how severe and rapidly-growing the disease becomes. The disease has not yet reached the scope of the SARS outbreak, yet the increased interconnectedness of today’s global economy implies that any possibly volatility could have greater impacts, both economically and socially. 

This uncertainty is what is perhaps most frightening to investors and corporations. In that sense, it is vital that the Chinese government is entirely forthcoming and transparent with the health data, in order for the potential economic impact to be minimized. Without that information, the real risk might be worse than what has been led on and an act of ignorance can have economic effects of mass proportions.

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1/3/2020

The USMCA & LABOR LAWS

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On January 1st, 2020 a landmark trade agreement, the United States-Mexico-Canada Agreement (USMCA), was enacted, bringing about a new era of collaboration and cooperation. Replacing NAFTA, it reinforces foundational principles while codifying crucial aspects of trade such as international labour laws. To a certain extent this trade deal exemplifies a transition from free trade to regulated trade, providing robust outlines for tariffs on exports and imports in all three nations. In particular the USMCA includes Chapter 23, a new chapter specifically addressing labour laws.

The labour chapter is largely modelled off the Trans-Pacific Partnership (TPP), with scarce yet significant modifications. Similar to the TPP, the USMCA reflects the principles set forth in the ILO Declaration on Fundamental Principles and Rights at Work. In addition, the USMCA alleviate certain standards by creating provisions to address discrimination based on sexual orientation, gender identity, violence against workers and protection for migrant workers. 

Nevertheless, considering the historical context, ample human rights treaties still remain largely unfulfilled promises. In many cases corrupt judicial systems typically cause intrinsic human rights to be neglected, allowing for extrajudicial methods used by the police. Labour rights in particular are far more fragile and typically negated in exchange for cheap labor and economic growth. The same principles apply to the USMCA as the enforceability of provisions remains highly problematic. Leaving the means to implement these labour obligations in the hands of national legislation essentially calls for controversy. Although, these strengthened provisions do show hopes for increased cooperation and communication, both effective tools for advancing fundamental labour rights. 
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It is imperative to note that the USMCA can only codify widely acknowledged set of principles allowing a conversation to begin, however it is by no means enough to ensure that intrinsic human rights are protected in each nation. Bipartisan politics are typically at the source of inaction, meaning that while this treaty is a step in the right direction, enforcing labour standards and tangible action from the interagency committee the USMCA proposes, will be vital in the coming years. 

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10/7/2019

AI: The Fall or Future of Diplomacy

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Artificial Intelligence opens the door to a limitless world of opportunities, yet it has the potential to be equally as dangerous as it is beneficial. While the majority of industrialized nations are pursuing AI within the regulations of international law, others are taking radical measures to achieve supremacy. 

The global pursuit of AI technology encourages large businesses to outcompete each other. This essentially causes a paradigm shift, one in which the less competitive nations are able to raise their global profile, enabling them to operate in inconceivable areas of investment, trade, and diplomacy. The current primary area of concern within the realm of international relations involves using AI on the battlefield. This largely untested weapon has the ability to undermine all non-proliferation treaties and approaches to conflict de-escalation. 

Employing data warfare by using artificial intelligence, endangers the integrity of democratic discourse and wields the power to tarnish the reputations of governmental institutions. That is where the principal challenge lies concerning international democracy and social equality. Civil liberties and intensified social conflicts are a byproduct of unregulated AI-enhanced censorship and surveillance practices. Yet, the primary danger of artificial intelligence is not malice but rather a lack of understanding. 

Governments, military officials, and international organizations fail to understand how this technology functions and potential ways to combat it. This, in turn, leads to policies resistant to change rather than adaptation to these new developments. It is imperative to understand that the solution lies in actively promoting an agenda to understand AI and to regulate surveillance capabilities. 

In order to truly ensure a safe yet progressive world, transparency in AI development throughout all nations should be established within the domain of international diplomacy. Artificial Intelligence is the future of society, yet without adequate policy and international law to regulate it, there is little to stop it from transforming into the downfall. 

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    Shriya Shah, Head of Trade and Economics

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International Youth Politics Forum, Est. 2019
All arguments made and viewpoints expressed within this website and its nominal entities do not necessarily reflect the views of the writers or the International Youth Politics Forum as a whole. Copyright 2021. Based in the United States of America
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