Global Economies

The United States had been running enormous deficits for more than a decade and the cost to the Federal government was ballooning into the trillions of dollars. At precisely this time period the Cold War was ending, and debates about a Marshall Plan for Eastern Europe were beginning in earnest. The debt issue was a dark cloud hanging over any significant economic initiatives. As some noted, the debt bomb may turn out to be more dangerous to the future of Europe than the atomic bomb.

By early 1992, it was obvious that there would be no Marshall Plan for the East. Western governments were applying piecemeal solutions and high-priced consultants as an answer to hyperinflation and unemployment - notwithstanding that these were the same dynamics that brought down the Weimar government in Germany and the nascent democracies of Central-East Europe in the Thirties. EWI has been good at sensing high-leverage gaps where a modest investment can pay off with serious results. Our decision to open the EWI Banking and Financial Assistance Centre in Budapest was based on knowledge that hundreds of banks and financial institutions were passing into new hands but these senior managers often had no prior experience. Overwhelmed and unwilling to "come clean" with a younger generation of colleagues in the many banking seminars being offered by the West, these managers were in a quandary. EWI created an institution, financed and staffed largely by European and U.S. banks. After several years, most top managers have taken several EWI courses.

The Budapest based Banking and Finance Assistance Centre, conceived by EWI Director Anthony Solomon, former President of the Federal Reserve Bank of New York, launched a series of targeted training seminars bringing bankers together from Eastern Europe and the West to educate the top managers on reforming and operating financial institutions. To better support financial sector reforms, EWI's Warsaw Centre published the International Task Force on Western Assistance to the Transition in the Czech and Slovak Federal Republic, Hungary and Poland, examining the assistance process to date, identifying strengths and weaknesses and making policy recommendations to improve Western aid. The first attention to long-term unemployment came from the EWI Prague Centre's publication Removing the Barriers: Strategies for Assisting the Long-term Unemployed, investigating global best practices relevant to Central Europe.

Since the relative health of the commercial banking sector and capital markets would ultimately determine the development of civil society as a whole, the Institute together with the Harvard Business School faculty fashioned an exhaustive case study of the successes and shortcomings of the Czech economic transformation. Analyzing the policy failures leading to the Czech economic downturn of 1997, the assessments are commonly used by Czech and other regional policy makers in their efforts to determine choice points and consequences in transition economies.

Executive Summary

Between June 2009 and January 2010, the EastWest Institute (EWI) began exploring how the United States, China, and the international community could build strategic trust through cooperation on climate change and climate security. EWI examined this issue through policy discussions in several forums: Track 2 processes such as the U.S.-China High Level Security Dialogue and the U.S.-China-Europe Trialogue21 initiative; a roundtable session in New York; and the U.S.-China Working Group on Climate Change—a group of Chinese and American experts convened with the support of the Connect U.S. Fund who met before and after Copenhagen to assess progress and to determine ways to move forward.

The timing has been fortuitous. The United States is re-engaged, domestically and internationally, on climate change issues; the Obama administration has moved climate and clean-energy cooperation to the top of the bilateral agenda with China; and the disappointing Copenhagen climate change negotiations have left the United States, China, and the global community with much to do to find a new international framework on climate change before the Kyoto Protocol expires in 2012.
This paper captures key observations from those discussions, focusing on two areas that pose the biggest obstacles to progress in bilateral and multilateral efforts to address climate change concerns. These areas are:

• The trade-off between emission caps and development goals;
• Technology transfer and intellectual property (IP) rights.

An important caveat: while the paper draws heavily on the discussions of the EWI-convened U.S.-China Working Group on Climate Change, the views in this paper should not be ascribed, individually or collectively, to members of the group. The group’s debates and discussions helped inform this paper’s analysis and recommendations, but the paper does not reflect a consensus in the group, because indeed consensus was lacking.

• The main challenges and recommendations relating to the main points of contention are summarized in Table 1. Among the biggest concerns—reinforced in large part at the Copenhagen meeting—are:
• The establishment of a system for the measurement, reporting, and verification (MRV) of emissions commitments that is acceptable to both developed and developing countries;
• Fostering confidence between the United States and China in each other’s carbon reduction commitments;
• Overcoming market, regulatory, and political barriers to technology transfer, including concerns over signs of “energy protectionism;”
• Reconciling different notions and expectations between developed and developing countries about each other’s role in technology transfer and financing;
• Building confidence in China’s IP protection regime and the broader international debate about the role of IP in clean energy technology transfer under the United Nations Framework for Climate Change Cooperation (UNFCCC).

Evident in the discussions was a stark contrast in the underlying American and Chinese assumptions that frame the debate. The two countries differ in their views of their obligations to reduce carbon emissions, their relative willingness to compromise national sovereignty for verification regimes, their contrasting notions of technological transfer from developed to developing countries, and their assessment of the role of IP (including China’s IP system) in the facilitation of such transfers.
Politics also play a role. Prospects of climate change legislation in the United States are dim: the divisive battle over health care reform and upcoming mid-term congressional elections have hardened divides within the U.S. And the politics of U.S.-China relations, which have affected mutual perceptions and cooperation in areas such as security and trade, have spilled over to the realm of climate change and clean energy as well.

The recommendations in this paper primarily address U.S.-China cooperation. The two countries are the world’s largest carbon emitters and have a critical role to play in moving the international process ahead. While the United States and China do not speak for all developed and developing countries respectively, we hope that these recommendations will help shape a framework that both developed and developing countries can accept.

Table 1:  Summary of Main Challenges and Recommendations

Executive Summary

While President Karzai promises economic opportunities for the Taliban, Afghanistan remains heavily dependent on foreign aid and has few sources of income generation for the government or the people. There is certainly potential for advances in these areas in Afghanistan, in agriculture or mining for example, but it will take time to develop them and make them sustainable. In the short term, no significant improvements are expected in the labor market. Achieving some progress and stability in Afghanistan, however, is time-critical. Dwindling support for international engagement in the country highlights this urgency.

In light of this situation, the international community should focus on developing Afghanistan’s migrant labor capacity in a targeted and systematic way in order to increase the prospects for income generation in the form of remittances. The development of semi-skilled and skilled vocational sectors in line with forecast requirements of employment markets, targeting the GCC member states, could provide a near-term solution to Afghanistan’s limited economic prospects.

• The potential of remittances to enhance economic development in poor developing nations is highlighted by the many successful examples of remittance flows to Asian countries, whose workers are based in member states of the Gulf Cooperation Council. In that context, the volume of remittances sent home is, for many developing countries, the largest source by far of external capital. In many cases migrant labor contributes considerably to the Gross Domestic Product (GDP) of recipient countries.
• Despite the financial crisis and subsequent economic problems, economic growth prospects in GCC countries and the need for migrant labor appears to be strong over the coming decade due to large scale infrastructure projects in Saudi Arabia and the U.A.E. in particular.
• The increasing jobless rate among nationals of GCC member countries in coming years is not likely to negatively affect migration flows from the Asian countries as the greatest need remains blue collar unskilled and low-skilled labor. Nationals of GCC countries generally target junior and senior white collar jobs.
• Currently, the numbers of Afghan migrant laborers in GCC countries are relatively small. Afghan migrant labor has so far (often illegally) targeted the neighboring countries of Iran and Pakistan. Due to their own demographic situation and economic difficulties, both countries, however, will not be able to continue to accommodate significant numbers of Afghan migrant laborers. They are, on the contrary, in the process of returning Afghan nationals back to Afghanistan and implementing significant refugee return programs.
• A coordinated approach by GCC countries in line with expected labor requirements would considerably enhance the stability of Afghanistan via remittances. Historically, GCC member states have shown a strong commitment to supporting Afghanistan. With the expected economic growth in GCC countries, there is the further potential for a considerable strengthening of bilateral relations and an increase in the numbers of Afghan migrant laborers to GCC countries. Such a move would quickly result in external income for Afghanistan and contribute to its economic development.
• The large numbers of Pakistani migrant laborers in GCC countries and the role their remittances play in the Pakistani economy may lead to friction with Afghanistan if Afghan laborers in GCC countries are perceived as a competition harmful to Pakistan’s economy. A possibility to avoid such situation would be a cooperative approach based on a quota system that allows Afghanistan to profit from the increase in labor demand expected over the next years in a predictable and agreed-upon way.
• Many international donors have given their support to the Kabul government, actively promoting vocational education and training in the context of their development programs. The next logical step is to strengthen these programs in line with needs of migrant labor markets to qualify unskilled Afghan labor force for employment opportunities.
• Cooperation between GCC countries and the international community’s training programs in Afghanistan would help deliver migrant labor programs in a targeted and economically viable manner.

EWI's project was launched at the time of large-scale reforms in key areas of government and municipal administration in the Russian Federation, including administrative, local government and budget and urban development and housing legislation reforms. 

It contains key documents prepared by experts of EWI's project on "Reforming Municipal Finance of the Kaliningrad Oblast through Performance Budgeting" in 2005-2006, which shed light on the challenges in managing budgeting processes at the local government level in the Kaliningrad Oblast. Tendencies towards modernizing these processes through administrative and budgetary reforms in the Russian Federation and the policy of the oblast authorities are also explored. The authors devote particular attention to the relationship between performance-based budget management and strategic regional development planning.

In order to deal with resurgent nationalism in the global scramble for energy resources.

At the beginning of the EastWest Institute’s 4th Worldwide Security Conference (WSC4), held on February 22-24, 2007 in Brussels, most attendees gave a pessimistic reaction to this straw poll. Two themes were central to the conference. Firstly, that at the core of counter-terrorism is the essential task of not allowing terrorist violence to dictate the nature and function of our society; and secondly, that terrorism is illegitimate and criminal. Terrorism cannot damage our liberties and rights, and it is a crime, not a war. Are we winning the long-term struggle against current terrorist groups and movements? The conference said no. Are the terrorists winning the propaganda war? The conference said yes.

Among the major issues addressed in the book and the presentation were:

• Energy security is a core part of national sovereignty for many states.
• There is a need to depoliticize and to de-securitize energy.
• All actors concerned—whether energy-exporting or energy-importing—are interested in a stable and predictable energy markets and physical continuity of energy flows.
• All parties concerned should work on resolving the overall general sense of insecurity and correct the misperceptions about the real intentions of the major global energy actors.
• Transit and importing countries consider energy as an issue of strategic importance. For example, not only Turkey wants to be a major West Asia’s energy hub, Ankara also sees itself as a rising global energy player. Similar to Turkey, India does not hide its ambitions to become South Asia’s top energy actor.
• Closer cooperation between different international and regional energy regimes is essential. The United Nations can play a more significant role in fostering trust and cooperation in this matter.
• In Europe, the trend towards a common energy policy lies in intense consultations between member states. National governments and not EU institutions should have a decisive influence on the development of EU’s common energy vision.

The Lindh Programme book was able to delve in more depth into some specific threats to the global energy security. Among the most pressing issues are:

• Internal unrest/instability in the energy-producing and the transit countries—especially Iraq and Iran;
• Intra-state tensions on the global scale and the energy-producing and transit regions;
• Terrorist attacks against energy installations, pipelines and maritime energy routes;
• Political and diplomatic mistrust between energy exporters, energy importers, and transit countries;
• Real and perceived scarcity of the hydrocarbon resources;
• Rarity of new large-scale discoveries;
• Territorial disputes;
• Use of energy as a political tool;
• Selection of the transport corridors and conflicts between importers, exporters and transit countries.

To address these very real threats to global energy security, governments, international organizations, the private sector, and civil society should work together to mitigate existing threats and prevent the emergence of new challenges. These actors should use multilateral frameworks, preferably under UN auspices, with a number of binding rules, and take into account the interests of all stakeholders involved. This universal framework should also integrate all positive results achieved by existing global and regional energy institutions such as the Energy Charter Treaty, the International Energy Agency, and the International Energy Forum.

Among the next steps that concerned energy stakeholders should undertake include:

• Diversifying energy systems on the global, national, and regional levels;
• Developing and implementing advanced energy saving and energy efficiency measures;
• Build up of emergency fuel stocks;
• Promotion of R&D activities to spread efficient and environment-friendly technological options;
• Development of traditional and new domestic energy sources;
• Strengthen multilateral energy cooperation;
• Promote an institute of ‘energy diplomats’ on the global and regional levels.

EWI will continue to undertake research and develop recommendations on the pressing issue of global energy security through its work in energy and conflict prevention, including planned work in 2008 on integrating Iran in binding regional frameworks through energy cooperation.

The United States and China are in dire need of secure energy solutions that can keep pace with their large appetites for energy. Both countries possess abundant coal reserves, but the approach to coal policy has favored cheap extraction over serious consideration of the societal costs of coal. This paper studies the use of coal in the two countries and recommends steps they can take to make coal productive, sustainable and environmentally responsible,