Ep. 7 - Decolonizing International Econ ft. Fadhel Kaboub

Funny Money is a show about the economy; how it works, and how it can work better.

In this episode, Ka and Andrés are joined by Prof. Fadhel Kaboub to discuss the international economic world order, the global financial system, and how countries across the Global South can decolonize their economies by reducing foreign denominated debt and expanding domestic production in energy, food, and value added goods.

** VISUAL SLIDE DECK **

Fadhel Kaboub is an associate professor of Economics at Denison University in Ohio and the President of the Global Institute for Sustainable Prosperity. He recently served as Under-Secretary-General for Financing for Development at the Organisation of Southern Cooperation in Addis Ababa, Ethiopia. He is an expert on designing public policies to enhance monetary and economic sovereignty in the Global South, build resilience, and promote equitable and sustainable prosperity.

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Transcript

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Hi, everybody. Welcome to Funny Money. This is a show about the economy, how it works and how it can work better. Don't forget to like and subscribe and share the podcasts. And if you listen on Apple Podcasts, leave us a review and please give our producer Mike some apple pie while you're at it. He is so hungry, he just works in a basement editing this podcast. This is going to be a great episode. We are going international and so our guest is Prof Fadhel Kaboub who is an associate professor of economics at Denison University in Ohio, and he is the President of the Global Institute for Sustainable Prosperity where I happen to be a research fellow at. He recently served as Undersecretary General for Financing and Development at the Organization of Southern Cooperation in Addis Ababa, Ethiopia. He's an expert on designing public policies to enhance monetary and economic sovereignty in the Global South, build resilience, promote equitable and sustainable prosperity. His work focuses on a just transition, on climate finance, on transforming global trade and finance, investment, architecture, all of these great things. We're so excited to have Fidel on the pod. Fidel, welcome. Thank you for having me on the show. It's a pleasure. All right. Let's get into it. Let's start at the beginning. But maybe it's the beginning of the end. This is where things weren't going great, but maybe they started to go worse. A lot changed about how the international economy was running after World War Two in a little town in New Hampshire. Can you just talk about how the international order of money in the global economy changed post World War Two? Yeah, so it starts before the war actually in the interwar period where there was a lot of currency wars between European nations in particular, and this is what is often referred to as “beggar thy neighbor” policy. So, for example, Germany would artificially devalue its currency relative to the French currency, and the French would retaliate and would artificially devalue against the Germans and the British and so on. So what is the devaluation? It's the easiest thing a country can do once it controls its own currency. You simply lower the value of your currency relative to another country, and you do that by flooding the foreign currency market with your own currency. So you just go into the foreign currency market and you offer to sell more of your own currency, which you can issue freely and therefore you weaken the value of your currency. And when you do that, there is something behind it that's advantageous to you, and that is you make everything that you export relatively cheaper. And that's why the currency devaluation was attractive. So this way you start accelerating your exports to your neighboring countries and you destroy their industries basically. And in retaliation they'll try to do the same. And at the time, this was so important because all of these countries were under the gold standard. So when you run a trade surplus, when you export more and more and more to your neighbor, they pay you in gold. And gold was the reserve currency at the time, and gold was considered the thing that will make a nation more powerful both economically and militarily. So it was a strategic devaluation and of course it was extremely destabilizing for business because everybody was using this artificial devaluation to damage the neighboring economy. And some would argue that was partly one of the reasons for the actual Second World War. So towards the end of the war, the allies met in New Hampshire to figure out a solution to avoid these currency wars moving forward. And as a result, they sat down and designed the global financial architecture that we pretty much have to this date, and that is 1944. So remember, 1944, most of the African continent was still colonized. There was only three African nations, I believe, present at that meeting with not a lot of choice or weight to begin with. So when we fast forward to today's world of financial architecture, a system that was not designed by us for us cannot be the system that will save us today from all the financial troubles and the polycrisis the multiple crises that we're dealing with. So but to go back to your question, that financial architecture was sort of a competition two proposals, one coming from the American side and one coming from the British side and representing the British side was John Maynard Keynes, the famous economist. And representing the U.S. side was Harry Dexter White. And both proposals were similar but different in one aspect. The first component of this global financial architecture was to create the IMF, the International Monetary Fund, which will be sort of like the emergency room for countries that have a currency crisis. In the past, when you had a currency crisis, you can use this artificial devaluation to stabilize your economy, but at the same time hurt your neighbors with this currency devaluation. So the IMF would be the place for you to go to avoid this currency war. The IMF will step in and give you foreign exchange, help you stabilize your economy. So it's like a short term emergency loan to stabilize the economy until you recover this way. You don't hurt your your neighbors. So that that was initially the role of of the IMF. And to some extent, it still functions for the same purpose, except the conditionalities that imposes on countries that are in currency crises are extremely severe, their austerity conditions, and they tend to actually hurt the economies. And in the long run, we can come back to this. The second component of this global financial architecture was the creation of what we know today as the World Bank. Initially, it wasn't created to develop the Global South or to deal with climate change or any of that because the Global South was colonized. So what was the role of the purpose of the World Bank? Initially, it was essentially the bank to finance the reconstruction of Europe because Europe was completely destroyed. And after Europe was rebuilt after a decade or so, it was sort of reinvented. In the sixties and seventies, as most of the Global South gained independence, it was reinvented into a development bank. The bank that we know today. So that's what we ended up with from the Bretton Woods system. The Keynes proposal, which didn't go through, included a third component, which will be sort of like a global central bank. That would be the balancing entity for the global financial architecture and its very simple mechanical proposal, but very politically unacceptable at the time. So the idea was for countries that have trade surpluses, they would use their surplus either to create full employment domestically in their own country, so they would spend their surplus, create jobs, build infrastructure, do whatever the national priorities are, or they could spend their surplus to buy things from abroad. In this way, they would help other countries create jobs and develop and reduce their trade deficit if they have a trade deficit. Or the third option if you don't use it, if you don't use your surplus after three years or so, you lose it in other way. In other ways, it goes to this international central bank that would take that unused surplus and reallocated to the countries that have structural trade deficits to help them develop, build infrastructure and balance their economy. So it's a use it or lose it system. And of course, at the time the US wouldn't accept such a proposal because it was very clear after World War Two that the major producer or exporter in the world was going to be the United States because Japan was destroyed, Europe was destroyed and the rest of the world was essentially the Global South. So who's the major industrial producer that's going to help rebuild Japan, rebuild Korea, rebuild the rest of the world? That was the US. So the US didn't want an international organization to take its surplus and relocate it based on whatever criteria to other countries that the US may not want to give its surplus to. So the U.S. wanted to be fully sovereign and not have any organization tell it what to do. But in practice this is the beauty of Keynes's proposal. In practice, the U.S. rejected Keynes's proposal, so we didn't have that system. But in practice, the U.S. did exactly what Keynes suggested. The U.S. took its trade surplus and more, actually, and gave it as a gift to Europe in the form of the Marshall Plan. Without material and financial aid from abroad, the European nations faced complete collapse to save Europe from this disaster. General George C. Marshall, the United States Secretary of State in 1947, made a dramatic appeal to the people of Europe. If they would work together, the United States would supply the money for food and raw materials essential to recovery. And we're talking about the equivalent of 5% of U.S. GDP was gifted to Europe in today's dollar, as this will be close to $1.5 trillion. And today we're talking about, you know, we don't have any money for climate change. We don't have any money for, you know, loss and damage fund to compensate the Global South for the damage we caused, things like that. So just to put things in perspective, so that's the IMF, the World Bank, the Bretton Woods system that we ended up with in 1944. Then there's another major organization which we can talk about, which is the WTO. That was created much, much later that. But the process for it started in the 1960s through the GATT, a series of GATT agreements that culminated in the creation of the WTO. And that's kind of the third pillar of the system we live in today. Yeah, let's actually get into to the World Trade Organization for a second here. I would be curious for you to just explain what it was at its genesis and what it actually went on to do. So it started as a series of free trade agreements initially between major developed countries, the U.S. and Europe and Japan and Australia and so on. And then eventually it started to include more and more of the developing nations, because in the 1960s and seventies, quite a bit of the global South became independent countries and started signing their own agreements and so on. But the basic principle of it, and this is something that people are always, forget about the history of international trade as it relates to development. It was a belief that, free trade enhances competition, that free trade is good, it's healthy, just like, you know, sports competition is healthy for you, except that, you know, in sports, I always use the boxing metaphor here, if you like boxing and you will never see a heavyweight champion in the ring with a lightweight champion and call that healthy competition. It's illegal, it's immoral, it's ugly, and nobody wants it, no matter how much you like boxing, right. But in international trade, we allow a heavyweight champion like the U.S. or Japan in the ring with a lightweight champion or a lightweight boxer from the global South. And we call that healthy competition. It's good for you. Of course, it's not destructive. So some of the basic rules of the initial GATT agreements and international trade agreements was okay, we agree. Some of the countries in the global South are not competitive enough. They're recently independent, they're not industrialized. So we'll give them a little bit of time. This was called at the time the infant industry hypothesis. It's like a little infant. You have to give it time to protect it, to grow it until it's strong enough to withstand the competition. So a lot of the developing countries were exempt from these trade rules for a period of ten years, 15 years, depending on the agreement. And the idea was that they will use that time to grow their industries and be able to compete. And of course, due to a lot of reasons, some of those countries, the majority of those countries were not able to industrialize in the same way as the US. Ten years is not enough to industrialize because you have a small internal market, say, of 10 million consumers. There's no way you can build an industry that is robust with 10 million consumers. Let's say you wanted to produce bicycles hypothetically, right? You have 10 million consumers. You produce the first 10 million bicycles in the first year and a half, and then what do you do? You're going to have to export to a larger market because every time you talk about manufacturing, the key word is economies of scale, economies of scale, meaning the larger the volume of your production, the lower the cost per unit, the better the quality, the more competitive you become. So you really need the large market of 50 to 100 million consumers to industrialize. And that bicycle industry, for example. So what do you do if you have to export? Well, the problem is that you're exporting and now you're competing with Made in Germany, made in Japan, made in Switzerland. There's no way that your bicycles will be competitive. So what you end up doing is one of the big bicycle manufacturers from Germany or Japan or Switzerland will come to you and say, Listen, you can't really play this game. Here's what you can do. We're going to partner with you. We're going to help you industrialize. How about you give up this manufacturing of bicycles altogether? We will produce the high quality components in Switzerland, in Germany and so on. And then we'll ship you all the components or bring you the machinery, the equipment and everything. You know, you just do the assembly for us, right? The low value added content is now assigned to you, the Global South, and we are in charge of the marketing, the distribution, the manufacturing of the high tech components, the technology, the design. Everything is in our hands. You just do the assembly with your low cost labor. So most of the global South to this day is stuck in that kind of manufacturing. And that is one big part of the story of our global crisis. Today in the global South, the external debt crisis, including the climate crisis, by the way. And the second most important component that a lot of people forget when we talk about these crises today is the issue of food at the time when the general the GATT agreement I should have spelled it out GATT is that general agreement on tariffs and trade because countries imposed tariffs to protect their industries and so on. So that GATT agreement, everybody at the time used to say explicitly, they say we believe in free trade in everything but arms and farms. So free trade in everything except weapons, understandably, and food. Why? Because at the time 1960s, most of the industrialized world realized that all of these former colonies that used to be the bread basket for Europe, for example, are now independent countries. In Europe, the former colonizers, they didn't have food sovereignty. They became food dependent on. Now these new African countries who have their own policies and sovereignty and so on. So 1955, as the Europeans met in Rome for the first major meeting that led eventually to the creation of the European Union, they said, We can't have this. We need to establish a food sovereignty system in the European Union and started the series of negotiations on what that thing will look like. 1962, they signed CAP, which is the Common Agricultural Policy. Policymakers and politicians realized the farmers are very important. Therefore, the farmers were guaranteed good prices for their products in order to improve their work methods, enlarge their farms and work more efficiently. CAP is still in place to this day. It's a system of massive subsidies and support to European farmers to produce core crops wheat, corn, soybeans, barley, you name it, the basic staples for human survival. And that meant, as the European Union was doing this from 1962. And similarly the U.S. was doing the same Japan, Canada, Australia and the former Soviet Union, by the way, which today is mostly Russia and Ukraine, major food producers, all of those countries became heavily subsidized, was of those core staples, whereas the Global South didn't have the foresight or the capability to heavily subsidized their own farmers. So now if you're a farmer in the global South and you produce corn, for example, or wheat, all of a sudden your selling price is much higher than Ukrainian, American, French, Russian, Australian prices. So what do you do? You lose business and you have two options. One is to sell the land, give up farming and move to urban areas and work on those new and these new factories, right. Assembly line factories to assemble those components for those bicycles. As a low wage worker. So you move from being a skilled farmer to an unskilled labor. Right. And quote unquote, unskilled labor. And in manufacturing or the other option, you can still farm your land, but you can't do wheat or barley or corn because that's not you're not competitive in that area. What you can do is you can produce strawberries for export, you can produce bananas, you can produce tomatoes, you can produce what we call cash crops. So these are things that you want to export to Europe. These are complementary foods, not basic survival foods. Right. Not key to your food sovereignty. So now all of a sudden you have a massive amount of farmers who are giving up the production of four staples and switching to cash crops. And that starts the debt trap cycle that persists to this day. And if you indulge me, I'll just add a couple of, key points about how this vicious system continues because it's extremely destructive. So now the cash crops you're selling them in Europe, right, to industrialized countries. So you have to serve the taste of those consumers. They want strawberries, they want tomatoes, they want. And the and the tomatoes, they have to look really pretty right. And the strawberries, they have to look perfect. Right? Because you're selling this for export and they have to survive the journey, Right? So you have to harvest them and ship them and get them to supermarkets and they have to look perfect. So the problem is your native crops won't do it because they'll go bad after a week, right. And they don't look perfect and they may not match the taste of the European consumer. So over time you gradually start switching your native seeds and native crops with imported crops from Europe, from the U.S., from other places, to match the needs of your customers. Right. Customers. KING Here. So the problem is those seeds can't really survive in your climate unless you give them lots of fertilizers, lots of water, lots of pesticides, right? So that they look clean and perfect, which means after you use those seeds and fertilizers and pesticides, all of which you have to import, by the way, after you do that for 5 to 10 years, the yields start to decline. Why? Because you've just burnt all the nutrients in your soil. So what do you do? You have to buy even more aggressive fertilizers. You have to cultivate larger areas of land dedicated to that particular crop. And now you have to consume even more water. In many countries in the global South, you're facing droughts and so on. So you've moved away from the seeds that can survive years of drought, that can, you know, produce a certain produce a reasonable yield without fertilizers, with pesticides, and now becoming completely dependent on these imports. And simultaneously you're not producing enough wheat or corn or soybean for your people. You have to import those from Russia, from the Ukraine, from the US, from France and so on. So that becomes a persistent cycle of external debt. Fast forward to today. Africa, for example, imports 85% of its food, the most fertile soil on the planet is in Africa, and yet we import 85% of the food on this continent. Not by accident. Again, if all you have to do is go back to the 1960s and follow those major decisions and how they persist to this day. So that's that's the system we live in today and eventually get after many, many countries joined, it turned into the World Trade Organization, the WTO, which is the international organization that governs the rules of free trade. And of course, it became more vicious over time by establishing more aggressive rules against countries in the global South who tried to subsidize their industries because that's unfair or try to subsidize their farmers because that's unfair competition or try to impose tariffs and restrictions on imported goods. Right. So if you do that, you get taken to court within the WTO, not an independent court within the WTO says, look, you signed to these rules, you agreed to these rules, now you're subsidizing your industry. You can't do that. We're going to impose sanctions. We're going to isolate you or you're going to have to pay compensation for the companies that lost business because of your subsidies and so on. So this is what Professor Chang from Cambridge in his famous book referred to as Kicking Away The Ladder. In his 2003 book, Kicking Away the Ladder, Chang argued that the developed world puts pressure on poorer nations to adopt certain economic policies. These, they say, are essential to economic development. But Chang asks, How did the rich countries really become rich? When he looked back through history, Chang found that past economic evolution did not resemble the process pushed on poorer nations today. The countries that climb to the top using a particular ladder, which is the ladder of subsidies and industrial policies and so on. After they reach the top and became industrialized, they turn away and take away, the latter and said Nobody else can do this. We've established the rules and we enforce them. And you can't you know, violate those rules. So that gives you a little bit of preview of how that system that was, again, designed not by us, not for us. The global South, that is, can't be the system that today will save us from a global food crisis, a global energy crisis, a global financial crisis, a climate crisis. Of course. This was also a period of time here where you had Western countries start to really believe that colonization was wrong, but they also developed this neo colonization, right? The development of passive dependency, not only just when it came to trade and when it came to the economy, but also when it came to currency and money and financial institutions. Can you just say a little bit about the debt crisis being a tool, these development loans that were extremely predatory, creating new dependencies when it came to currency and money? Absolutely. Well, in fact, I mean, the the colonial period, over time became sort of embarrassing for the Western world because, we have people preaching about human rights and freedom and liberty in the West. Right. And democracy, while at the same time having, entire nations enslaved and colonized. It became untenable, embarrassing at home. But also in the global South, you have more and more, rebellions and and arguments for independence. So, they did the right thing, right? We're no longer going to, operate in a colonial system. We're going to transition to a system of independence except the neo colonial system that was established afterwards was essentially the continuation of colonial structures, because during the colonial times, if you look at most colonizers, over time, they realized that they really didn't need their physical presence of their military troops. It became sort of troublesome after a while, because it's just, drawing more attention, drawing more clashes. They figured that they could get all the benefits that they wanted from colonialism, which was extraction of resources, which is extraction of, labor power, which is having a large market in the colonies to dump the surplus output that they produce back home. They figured that they can actually continue to do that, to extract resources, use low cost labor, dump the surplus and control and manipulate those who govern those countries remotely from abroad without any troops physically present, and by signing international agreements that lock those relationships into place to this day. So that's what we call neo colonial system. And that was not done by accident because you can see it immediately after independence, how all of those international agreements and all of those bilateral relationships were established to continue the same colonial economic structures. And it continues to this day. So you fast forward to today's world. What we have is if you divide the world into, say, global north and global South and you net out all global financial transactions, that includes exports, imports, remittances of workers, sending money back home interest payments, even debt relief, foreign direct investment, all global financial transactions, net all those amounts. And the last figure we have from a few years ago is $2 trillion moving from the Global South to the global North. That is money moving from the poorest countries to the richest countries,$2 trillion annually. And that number when you go back, say, 20 years ago was about $500 billion a year and then it became a trillion and then a trillion and a half. And today it's about 2 trillion. And if we don't change anything about the global financial architecture that governs this system, this neo colonial global architecture, that number will be five, six, maybe $10 trillion in a few years, and money will keep moving in the wrong direction. And the visual that you have there kind of gives you put things in perspective when you when you look at that$2 trillion, you know, big circle that's actually moving in the wrong direction, it's sort of offset with all of this talk and all of this, back and forth about climate finance. Yes, we need to give the Global South more financial support for a just transition and all of that. We're talking about a promise of $100 billion a year that was promised more than a decade ago. Very little of it was delivered. The best estimate from the last couple of years is maybe we've reached$20 billion in one year, not even close. And then when you talk about the Green Climate Fund, which was supposed to have, you know, $100 billion a year, the last time I checked, was less than$11 billion. And with very restrictive conditionalities on who gets to qualify for for that financial assistance. And a lot of it is loans, not really grants. And then there's that white, tiny, tiny little dot which is 0 USD $0. That's the Loss and Damage fund. That's the actual reparations fund that John Kerry a few days ago told us. No way. The U.S. is not going to pay reparations to the developing countries for for climate change. So put this in perspective. I take $2 trillion every year from you and I promised to give you a hundred and I only deliver 11, and then I promise to pay for reparations and I give you zero in that empty bucket. It's the worst joke you can deliver when it comes to observing what happens in the global financial system. And that is the system that we're talking about when we say changing the system that was created in 1944, that creates these vicious cycles of debt that prevents sovereign countries in the global South from meeting the basic priorities and needs of their own people. And then on top of it, you throw a climate crisis that we didn't contribute to Africa, contributes cumulative contribution to CO2 emissions is about 4% of global emissions. That's the exact equivalent of what Spain emits every year. Spain alone. Right? So we're talking about a system that's designed not to allow the Global South to develop, to meet the needs and aspirations of its people. And then we turn back and say, well, you don't have a functioning system, you don't have a democracy. Well, how can you democratize a system that hasn't been decolonized yet economically, if I don't have the fiscal space or the financial wherewithal, or because I'm stuck in a debt trap because of all the rules you establish in 1944, the colonial and neo colonial rules, how can they economically meet the needs and aspirations of my people so I can have a democracy where I can actually respond to the needs of the people? Right? So this is that's why I always say you can't decarbonize a system that hasn't been decolonized yet. You can't democratize a system that hasn't been decolonized yet. And similarly, you can't de-dollarize a system that hasn't been decolonized yet. You have to have a comprehensive approach that touches on all of these pieces so you can actually start to decolonize on the food front, on the energy front, on the manufacturing front. And when you do that, you gain a higher degree of autonomy, a higher degree of monetary sovereignty and economic sovereignty that allows you then in a functioning democracy to meet the needs of your people. Otherwise your hands are tied and you can't do that. You can talk all you want about democracy, but if you can't deliver, your people will turn against you. Can you say a bit? This is, I think, a pretty related point, but what does it mean to be a reserve currency? And is being a reserve currency the only way for a government to spend a lot? So the reserve currency system sort of was inherited from the gold standard system right back in the day under the gold standard system countries fixed the value of their currency to the price of gold and when they trade internationally across borders, you export, you import. If you end up with the trade surplus, the other country will pay you in gold. And if you end up with a trade deficit, you have to pay other countries in gold. So all of these countries under the gold standard were obsessed with the accumulation of gold, right? So you wanted to have a trade surplus. So this was the mercantilist system. And one way to, accumulate gold is either via trade. So the stronger your economy compared to your neighbors, the more gold you accumulate. The other option, of course, is you go colonize half the world and find those gold mines and accumulate gold. But that was the the fixed exchange rate system, the gold standard system that we had when we transitioned to the Bretton Woods system right after 1944, the U.S. emerged as as the most powerful country economically and militarily. And the U.S. proposal, not the Keynes proposal, was a proposal where all countries will fix the value of their currency, not to gold anymore, but they'll fix it to the dollar. And then the U.S. government committed to fixing the value of the dollar to the price of gold. And that was the fixed exchange rate system. Dollar is anchored to gold, and then all other countries anchor to the dollar. So this way, no country has to accumulate gold. But instead, countries, are incentivized to accumulate U.S. dollars because that's the equivalent of gold in this post-World war. Two system. So countries again became obsessed with exporting as much as they can so that they have dollars that they can use for reserves, and that that created the dollar reserve currency system and that essentially created an international trade system where two neighboring countries exporting and importing from each other. They have nothing to do with the US, right? Think to developing countries. One country selling bananas to the neighboring country, the other countries selling mangoes to the neighboring country instead of trading in their own currencies. They say, No, no, no, no, sorry, we're going to have to trade in dollars. Why? Because I need those dollars to buy wheat from the Ukraine or to buy wheat from France or from Germany. Right. Because of the international food system or because need to import oil from Saudi Arabia. Right. Because now oil is is priced in dollars. So everybody's stuck in this system where they have to earn as much U.S. dollars as possible. Why? Because their debt to the IMF, their debt to the World Bank is also in dollars. Why? Because they needed those dollars to buy wheat, right. Or to buy fuel or to buy medicine or to buy high tech equipment from the Western world. So everybody started using dollars. And now your debt is denominated in dollars. And if you have a structural trade deficit that persists every year, then every year you're borrowing even more in dollars and have cash commitments to meet in dollars to pay the principal and interest in perpetuity almost. So that created a system where you're forced to accumulate dollars because you're not using proper economic policy strategies to get you out of that vicious trap of indebtedness, external indebtedness. And this is where sort of the MMT framework emerges in the last 20 years or so, initially focused on U.S. and Western industrialized countries issues. But then the last ten years, we started looking at how can a developing country that's in this global financial architecture with massive amounts of debt, how can that country gradually accumulate higher and higher degrees of monetary sovereignty so it can actually arise? Right. So what's the process by which it's not, de-dollarizing It's not kind of a political stunt. You just go on TV and say, from now on, we're de-dollarizing No more use of U.S. dollars. Well, that's great, but how are you going to do it? It's not just about not using dollars. It's about the economic underneath. So that brings us to the three major deficiencies, structural deficiencies that countries in the global South have struggled with from the 1960s. To this day, these are the structural deficiencies that create the external debt trap that force countries into this locked position where you constantly have to borrow more in dollars or euros or British pounds in order to continue to service the debt. But you're only using a Band-Aid solution. You're not actually structurally fixing the economy. So let’s ... I want to explore, the framing that's helpful to understand these structural deficiencies, but also very quickly asked that once the U.S. got the world off the gold standard in the 1970s, did any of this change or just kind of continue in the same way? Because I know you mentioned. Right, the world got to dollars and the U.S. committed to sticking to gold and then what happened once we got off gold? So the reason we got off gold in the early seventies was because the amount of dollar reserves accumulated in the entire world by other countries, by the central banks was vastly larger than the amount of gold that the U.S. physically possessed. So if countries showed up and said, Here are U.S. dollars, you promised to give me gold, the U.S. wouldn't have enough to meet the needs of the entire globe. It's because there is pretty much fixed quantity of gold in the world is growing and the volume of trade is growing. So the U.S., you know, a floating exchange rate the dollar is no longer fixed to gold or silver or any other precious metal, which meant all of those countries left with U.S. dollars as a reserve, sort of they just used them as dollars. Right. They can use them for international trade because by that everybody was trading in dollars. Oil was the major source of energy for transportation, for heating and cooling, for industrial activity. So everybody was buying oil in dollars. They were locked into that system and everybody was indebted in dollars, massively indebted in dollars. So they have to keep using dollars. When they export anything, they demand dollars so that they can meet their debt payments. So the deal was essentially sealed by them. All you have to do is just hook the entire world to your economy, to your currency, and then you just let them loose. And the rest of the world didn't have an economic policy strategy to delink essentially from the dollar. There is, of course, a lot of literature and discussion about it, but most countries in the Global South didn't put in place the economic strategy that will actually allow them to delink and operate under a more sovereign economic and financial system. And that is sort of the discussion that's emerging today. How do we de-link, how do we de-dollarize? Is it just a political announcement? Is it just a sort of a stunt or is there something much more fundamental transformative that rebalances the global economy? Because for a long time people were thinking, oh, you move away from the dollar, you move to the euro, you move away from the euro, you move to the yuan. It's like there's always something at the top that controls and dominates the entire world. Otherwise the world can't function. And what we're talking about here is a multiplicity of currencies that are balancing the entire global economy. But it's not done by announcement. It's done by actually countries balancing their economies, balancing trade, balancing the the volume and the content, the value added content of industrial activity around the world so that we're not divided between high tech countries and assembly line countries. Right. And I think that. We have a mix. I think that's really the key there, Fadhel because in a lot of conversations about reserve currencies and dollarization, de dollarization people do seem to have this tendency to say all you have to do is announce that you're not going to use dollars anymore. And that fixes the problem when in reality it sounds like what we're talking about here is really the structure of trade and the way different needs are being met and who's priorities are at play. When countries just interact and coexist with one another and a dependency on dollars, meaning a dependency on everybody existing for the benefit of it being whether the U.S. or Europe or another powerful sector, and creating what you just mentioned, which is like a high tech and a low tech system of the world. So on that note, I want to talk about the Modern Monetary Theory framework really quick. You mentioned that you brought up monetary sovereignty and, you know, for a long time MMT was kind of viewed as something that made sense for the United States. But some criticisms were saying that you can't apply that to the rest of the world. And so a lot of your work has begun to expand that conversation and deepen that conversation onto how do we use the principles of modern monetary theory for an international perspective, and particularly for the global South. So can you explain? We have a visual here that kind of explains and draws out the spectrum of monetary sovereignty. What are we looking at here? So essentially, I mean, the the joke in international relations that say all nations are sovereign, except, you know, some countries are more sovereign than others. Well, here we're talking about monetary sovereignty. I mean, everybody's familiar with sort of the sovereignty of a country. You have your flag, your national anthem, your borders, military, whatever. We're not talking about that. We're talking about economic and monetary sovereignty. And here the idea is that, you know, a country that can issue its own national currency and a lot of countries can do that, that's one basic component of monetary sovereignty. But it's not sufficient. A country that also imposes taxes on its people in the same national currency. And again, most countries can do that. That's part of your monetary sovereignty, but it's not sufficient to the third and fourth conditions of monetary sovereignty are really the critical ones that most countries in the global South struggle with. The third condition is that a country can issue bonds and issue debt denominated in its national currency. And if you do that and only in your national currency, then you have a high degree of monetary sovereignty. An example of a country that only issues debt in its national currency, or almost only in this national currency would be the U.S., Japan, the UK, Canada, Australia, China and so on. So all of your national debt, quote unquote national debt is denominated in your national currency. But the reality is that most countries in the global South issue two types of bonds government bonds, one denominated in the national currency, and that's the part of the national debt you can manage. And another significant component is issued in foreign currencies, that is bonds in dollars and euros and in British pounds and Japanese yen, which means you're borrowing in dollars or in Japanese yen or in euros, and you're promising to pay back plus interest in a foreign currency that you can't control in a foreign currency that you must earn somehow. Right. So once you do that, you're losing a significant degree of your monetary sovereignty. And then the fourth condition that relates to the degree of monetary sovereignty is how desperate you are as a country to fix your exchange rate to the dollar or to the euro or to any other foreign currency. If a country like the U.S. that doesn't really need to have an active strategy in policy to constantly fix the dollar to another foreign currency, then you have a very high degree of monetary sovereignty. In other words, you can let the value of your currency float and fluctuate more or less freely without having to about it. The reality is that most countries in the global South are micromanaging in a very obsessive way the value of their currency relative to the dollar, relative to the euro. Why? Because they have to watch that exchange rate stability because they're so dependent on food imports and fuel imports and and pharmaceutical product imports. Because if your currency weakens relative to the dollar, so the exchange rate drops, then everything you buy the next morning, whether it's food or fuel or medicine for your people, it's going to cost you more. So you're literally importing inflation and inflation and basic commodities translates pretty much very quickly into social unrest because people can't withstand the higher cost of living for basic necessities. So that's why countries in the global South with massive amounts of external debt, have to actively try to stabilize that exchange rate as a Band Aid solution. It's not a long term solution. And what does that Band-Aid mean? It means borrowing more dollars in order to keep the exchange rate stable so you prevent that imported inflation from hurting your population. And now you're on the hook again to issue more bonds denominated in dollars for the next year to keep stabilizing that in an artificial manner. And that's the observation that MMT brings in and says, well, that's unsustainable, but economically unsustainable financially, politically. So how do you get a country to gradually move on that spectrum of monetary sovereignty from the lower end of the spectrum to the higher and higher degree of monetary sovereignty? And you do that by addressing the root cause of your external debt, the root cause of your borrowing, which in the case of the global South, are three basic deficiencies. Number one is massive food imports. You can eyeball it when you look at the the visual composition of the imports of developing countries. So massive food imports, massive energy imports. And this is true even for the biggest fossil fuel exporters. A country like Nigeria, for example, imports 100% of its gasoline. One of the biggest oil exporters in Africa, because it lacks that technology and infrastructure, because there are rules put in place and so on. And number three, the basic deficiency that we struggle with is the fact that we industrialized in a way that locked us into the bottom of the value chain, either completely extractive industries or assembly line factories that import all the components, the technology, the intermediate goods, even the fuel. Right. The fuel, the the machinery in order to produce low value added content. So we import high value added content. We export low value added content. You're constantly deficient. So take these three together food imports, energy imports and value added deficiency that produces a structural trade deficit year after year that you have to treat either with a Band-Aid or with a structural solution. The Band-Aid is you borrow money, you fix the exchange rate and keep going. And that's what most countries have been doing. The structural transform portion. And you go to the roots of the problems. You invest in food sovereignty, you invest in renewable energy sovereignty, and you invest in a different kind of industrialization that allows you to climb up the value chain over time. And that's the basic observation and premise of a transformative economic development policy. And that's the number one priority to address climate change, to address the climate crisis, to address the external debt crisis. So a transformative set of policies will take a country from that end of the spectrum of monetary sovereignty, graduate to a higher and higher degree of autonomy. And it's not we're not talking about the global system where some countries have to be here and the other countries have to be there. No, we're talking about a system where all countries can be on that higher end of the spectrum, and that means rebalancing the global economy so that countries can actually produce food for themselves, produce energy for themselves, produce a reasonable, balanced amount of raw materials, semi processed and high end, you know, finished products in countries or in blocks of countries within within regions. But the system that we ended up with is completely bipolar in the sense that it's rich and industrialized and poor assembly line type of system that food dependent and energy dependent, technologically dependent and deeply indebted. And once you you accept your position in that system, it's very hard to to undo it. And I'll give you an example, and this is why I always talk about when it comes to those solutions, investing in food sovereignty, energy sovereignty and a different kind of industrial policy. The industrial policy part is really hard to do alone, right. And as I mentioned earlier, because in a small economy, even if you have 20, 30 million consumers, you can't industrialize. And that's why I always talk about global South cooperation, South-South trade and industrialization, Pan-African industrial policy, that is, take Africa, for example, especially today. And in a world where critical minerals are, you know, 100 times better than gold, right? Critical minerals that we use for all the high tech equipment, all the renewable energy infrastructure, the batteries, most of the critical minerals that we're talking about are right here on this continent or in Latin America. So the global South control is the actual source of of minerals. So take Africa alone, take a block of, you know, 20, 30 countries that have all the critical minerals in the southern part of of Africa. And then you're talking about a market of, you know, close to a billion consumers. And we're talking about a continent today that has 600 million people who have no access to electricity. More than 900 million people have no access to a clean cooking system. Right. We're talking about charcoal and things like that. Very dangerous for health or climate for all kinds of reason, inefficiency and so on. So there's a huge demand for renewable energy production here, right? We have all the critical minerals, we have all the human capabilities. What we may lack is the industrial manufacturing capabilities, the technological know how to actually manufacture solar panels and wind turbines and so on. So if you're a country on your own, you're sort of holding a slice of this big bargaining chip, right, with the rest of the world saying, I have all these critical minerals, but if you put those countries together, you have the full chip. You say, listen, we have all these critical minerals, we have the demand internally so we can industrialize and actually hit economies of scale because we have a large market and we have the human capabilities. Now, we would like to partner with you as in partner, right. Not as a neocolonial relationship. We have the resources, the capabilities, the market. And we would like to partner with you whether you are Germany or China or the U.S. or Japan for a 50-50 investment strategy, industrialization strategy, where you bring in the technology. We have the resources and capabilities and market demand to build the manufacturing base right here on this continent to serve the needs of the people. So this is not export oriented industrialization. This is for producing value added and retaining value added within the same system that country by country, but a group of countries. And this is not I'm not inventing this. Right. This was done specifically in Europe. I'll give you the classic example where the European countries wanted to compete with the U.S. when it comes to what Boeing was doing. Boeing was a global superpower. Right. In terms of producing manufacturing aircraft and and so on, not just military technology, civilian technology and so on. So when the Europeans wanted to produce the competitive equivalent of Boeing for commercial aircraft, there wasn't a single European country that was able to do it because of economies of scale. Right? Because you need a large market to industrialize in the high tech sector. So what did they do? They produced a joint venture system where a whole bunch of European countries use their resources and capabilities in complementary ways to and use the large market share that they collectively hold to produce Airbus. Airbus wouldn't exist today if it wasn't a joint venture of, you know, a dozen plus countries in Europe. So here we're talking about doing the same thing in the global South context, not necessarily to compete with Boeing, but we're talking about basic necessities, manufacturing the basic units that we need for renewable energy, manufacturing, the basic supplies that we need for transportation system that links up the continent manufacturing, the basic needs that you need for agricultural investments so that you can acquire a higher degree of food sovereignty, agricultural sovereignty. So this is a different type of industrialization from the system. We've started and developed in the 1950s where it's just assembly line. That's not your industrial policy. When you're doing the assembly line type of work, you're actually contributing to the industrial policy of Germany, the industrial policy of Canada, because they produce everything and they assign the task to you and you think that it's your industrial policy, It's not an industrial policy. So here we're talking about doing exactly what Europe has done, what the U.S. has done, what Japan has done, what China has done, but doing it in the global South context, the problem that we face is a problem of vision. It's not a problem of not having the tools or resources or capabilities or even the historical examples to follow all of those exist. But we live in a geopolitical system, especially these days that's emerging after the global financial crisis, emerging after the COVID crisis that disrupted global supply chains and emerged after the Russia-Ukraine conflict. We see all the major economic blocs repositioning themselves. The U.S., China and the European Union primarily. These are the big, you know, blocs globally we talk about. You know, the Europeans are specifically literally talking about food sovereignty, literally talking about energy sovereignty in these terms and literally talking about technological sovereignty, repatriating critical industries back home. The U.S. is doing the same. China is trying to catch up on technological sovereignty after the US restrictions. So we're talking about these three blocks that tend to look into the future. We're talking about 50 to 100 year vision, right? This is where they see themselves. This is how they see themselves economically, politically, geo strategically and so on. And they have that long term vision. They use all the tools they have economically, economic diplomacy to nudge every country, including countries in the global South, into position, so to speak, for that vision that they have for themselves. And I always say if you don't have a vision, long term vision for yourself, you're always going to be part of somebody else's vision. They're going to incentivize you and nudge you and lock you into a debt trap to put you in that position. So all of these three blocks, their vision for Africa, for the global South, is more or less similar. They see the global South as the place for cheap raw materials. They see the global south, as the place to dump their surplus output from industrialized countries. They see the global South as the place for exotic tourism destinations, and they see themselves. They see the global South as the place where you outsource all of these obsolete technologies for assembly line manufacturing. And that is the position in which the Global South has been for the last 50 plus years. And that's exactly the position that the Global South has been in during the colonial times. It's precisely the same position. So the question for all of us today is, is this a turning point in world history where we can reposition the global South and balance the global economy economically and politically and ecologically? Are we going to continue to perpetuate the same colonial structures and as a result, not be able to meet the challenge of poverty, of climate, of stability and so on? And that's that's the sort of the clarity of what is happening allows us to make a decision are we wasting our time or are we serious about what we're trying to do? Something that a lot of countries in the Global South sacrifice in order to perpetuate this system is employment is there's high unemployment and there's a huge informal economy that people are making, you know, close to nothing and not meeting their needs. Can we kind of very quickly talk about how the capacity to invest in employment can be part of the solution to getting us where we need to be? Absolutely. I mean, the good news about the fact that, you know, we have such a significant lack of productive capacity and efficiency and productive capacity in the food system and the energy system and the industrial system is that the solutions that will get us out of these structural traps of the of the debt trap are solutions that happen to be huge generators of employment. So you create millions of jobs to produce the basic needs, the basic pillars for your economy. And you can use something like a job guarantee program you can start with the youth job guarantee or you can start with, you know, a head of household job guarantee and then scale up to a full fledged job guarantee system where you literally have a guaranteed employment with decent wages and benefits but directed and targeted towards areas that are structurally deficient in the economy, that is renewable energy investments. The industrial policy that we just talked about on a Pan-African scale, prioritizing the foundations of your economy as opposed to the system that we have today, which is prioritizing production of goods and services for exports to serve the needs of the global North. So it's about redesigning your employment policy to be in line with that grand vision that we've outlined, which is investing in food sovereignty, energy sovereignty and manufacturing priorities. The the basic observation that most people sort of skip or forget is that you can't have any economy anywhere in the world that can function without food and without fuel. These the two basic pillars that unfortunately many of our countries skip and say, oh, we can import the food, we can import the fuel, let's start producing, you know, assembling those bicycles so we can export them to Germany. Right? Or we can export them to France. But the problem is, you know, how how are you going to do that? Right? How can you support an entire population with imported food or almost an entire population with imported food? So, oh, don't worry about it. We export cash crops, but cash crops, You're no longer can do that because of droughts, because of you've, you know, reduced the fertility of your soul with these pesticides and fertilizers and say, oh, don't worry about it will borrow from the IMF and we'll export even more and then say oh we'll get more tourism. Tourism is is great, right? You create millions of jobs in the tourism industry. You bring people who pay in dollars or in euros. So now you have the dollars in euros you need to import food and to pay for the and so on. Except tourism is actually a structural trap if you don't have food sovereignty and energy sovereignty. Why? Because the millions of tourists you bring, you have to feed them. So you import even more food and high quality food. By the way, for them and the tourists you bring, you have to heat and cool the hotels and transport them. So you have to import even more fuel to support the tourism industry and you have to import all the high end, you know, furniture and equipment for for the entertainment and hotels and restaurants and so on. So you end up structurally adding to your deficit and you're racing to the bottom because we're talking about one country attracting tourism. Right. But you have 100 other 20, 120 other beautiful countries with beautiful people and culture and and beaches and everything who are competing with you. So everybody is racing to the bottom subsidizing the tourism industry, not recognizing that it's actually adding to the structural deficit when it comes to food imports in energy imports. So you end up with these false solutions that don't actually get you out of the trap. They drive you deeper into these structural traps. So this is sort of in a nutshell, a little bit of what we need to pay attention to when we talk about transformative policies on a global scale. So, so to kind of wrap things up and come back full circle to where we started this question that Keynes was facing with the United States and what to do about the world last century, We have this climate crisis. And, you know, one of the things that's come to the forefront of that issue is that the world needs to figure out how to collaborate to solve this this problem. Right. It sounds like certain forces in the United States and other imperial powers have justified the way they've done things from like a zero sum vision of the world whereby, well, if we don't do it for our advantage, someone else is going to do it. And everything is a big competition and it's always survival of the fittest in a very crude sense. Right? How do we think about international finance in a world of climate change from this perspective where we can, you know, think about how to develop sovereignty in other places, to develop monetary sovereignty, to meet human needs, but not in a way where, well, if they do better, we have to do worse, right? Like workers here in the United States are told that if people in Latin America do better, you're going to lose your job. How do we rethink that so that we can have a vision for sustainable prosperity that includes everybody? Well, when when you listen to the conversations today about the debt crisis, for example, in emerging markets, we're talking about a certain amount of debt relief. We're talking about, you know, providing more affordable financing for development, more affordable financing for climate adaptation and climate mitigation. It's mostly for mitigation, very little for adaptation. These days. The idea is that this will be sufficient somehow. But even if you when you take into account that visual that we just looked at earlier, the $2 trillion figure, even if you canceled the entire debt stock of a particular country, of the entire Global South today, that in and of itself will not be sufficient to solve our problems to address the climate crisis. Because if you keep intact the global financial architecture, that is that suction system that takes$2 trillion from the poorest countries, that that's still in motion. Right. To cancel the entire debt the next year, you're still going to have lack of food sovereignty, lack of energy sovereignty, deficient industrial policies. So within ten years, you're going to really humiliate the debt again. You're going to be back in the same position where you can't meet the needs of your people and therefore you can't even invest in the infrastructure that you need to adapt to a warming climate to all of these issues, let alone all the deficiencies we already have on the health front, on the infrastructure front. So that's what I what I call even the most aggressive strategy to cancel the entire that even if we're successful at getting that, it's still not sufficient. Right. So how do you repair this broken system? You repair it literally with a system of reparations, right? You change the global financial architecture that was designed not by us, not for us. Right. It's not going to be the system that will save us today. So you redesign it completely. You rebalance the global economy, literally rebalanced, not in terms of window dressing, but in terms of manufacturing base. So every country or regional bloc should have a mix of industries, of extractive industries, processing, assembly line, high tech, all balanced within the same country, including in the U.S. It's important in the U.S. to have assembly line manufacturing, right. It can't be all high tech and all high paying jobs. It has to be a mix. It has to be agricultural self-sufficiency in the Global South, not just in the U.S., in Australia, not in Ukraine and Russia and a handful of countries, because we saw what happened. We have one conflict, you have one pandemic, and all of a sudden global supply chains are cut off and people go hungry and the global south. So we have to rebalance the production and manufacturing and consumption and we have to give up also the obsession with growth for its own sake, right? So we have to give up this obsession with GDP and focus on quality of life, Right. Things that enhance quality of life. This is something that Keynes wrote about 100 years ago. He said, Once we've discovered better technologies and we we meet the needs of people, right? Food and fuel and basic quality of life, then we should work less and enjoy life, right, and focus on quality of life type of investment rather than, you know, growth for its own sake. As I say, it's this the ideology of a cancer cell. It will kill you and. It is literally killing the planet and killing us. Right. And it just so happens that all of these investments that enhance quality of life in the U.S. and Europe, our climate consists that they're climate solutions, right? Investing in renewable energy, investing in in the arts, in education, investing in people. So it's the care economy, right? Caring for people, caring for children, caring for the elder, caring for planet. These are high priorities, especially in the global north. The global north doesn't need more consumerism, doesn't need more growth, it needs better quality economic output. And a lot of it is in the care economy. And that means when we redesign the way we produce and consume things in the global north, including transportation, for example, which is an important factor, we have to do it in a very thoughtful way. Thank you so much for, though, for breaking all of this down with us. I want to give you a chance because I know after this pod, a lot of our listeners are going to want to find more of your work. So what are you working on? What would you point our listeners to? Well, you've highlighted this Just Transition report, which I had the pleasure of coauthoring with a group of independent experts working on issues of climate, energy and development policies in Africa. The Report is available on just Transition Africa dot org. You will find me in the next at least a year and a half doing work related to this report. But instead of writing the report, it will be more of the policy advocacy and policy design work across the African continent. After that year and a half, I'll be back to Denison University for my teaching job. I took a two year unpaid leave from Denison to do this type of policy work in Africa, and I'm very excited to work with the with a fantastic team of colleagues who helped produce this. This report. You can find me on social media. I'm pretty active and I usually share everything I do, whether it's webinar or a new piece or an interview. So looking forward to engaging with everybody, especially out there. Thank you so much for all this is great. Thank you. Until next time, Fadhel thank you so much. My pleasure. See you soon.