Insight and Analysis

In the modern American Presidency if someone is lucky enough to get a second term their focus tends to turn to foreign policy.  The Executive branch has more unilateral power in international relations than it does in domestic affairs, and after 5 years Congresses and Presidents tend to tire of one another. 

For this reason, many political observers where surprise by how little attention foreign policy got at this week’s State of the Union Address.  Instead, the President decided to side-step congress on domestic issues and focus on what he can do by himself on issues such as labor, employment, and energy policies. Only after forty five minutes did the speech turned to foreign policy.

Understanding what issues the President covered in the back end of this speech shows the administration’s priorities for foreign policy in 2014.

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In his State of the Union address President Obama made a clear call for immigration reform and said that 2014 needs to be a “year of action.”  The President also insisted that it’s an issue which needs bicameral support and that Congress must work with him.  However, many are wary because the President has discussed fixing the United States’ broken immigration system in the past without success.  For example, last year’s State of the Union address discussed his plan in greater detail than this year but legislative differences between the House of Representatives and the Senate have stalled any progress.

This time however, there seems to be bicameral support because Republican Party leaders have understood the growing Latino electoral clout (it is expected that by 2050 1 in every 3 voters will be Latino).  Speaker Boehner recently hired an immigration policy expert to join his leadership staff, causing many to believe that he will pursue legislation at some point before this congress ends.  Recent rumors say that GOP leaders could propose a path to citizenship for people brought to the U.S. as young children in the coming days.

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IMF Director Christine Lagarde’s first visit to Latin America was not to Brazil or Chile, but to Peru.  While there, she said that “Peru is one of the most vibrant economies in the world,” but that it also needed to ensure more “inclusive growth.”  Both of these statements are backed by data.  The nation has enjoyed some of the highest economic growth rates in the Hemisphere over the past decade, in 2012 the economy grew 6%, and positive stable growth is expected to continue (compare this with the U.S. at 2.8% growth).  However, Peru’s GINI coefficient, which is a numeric explanation of income inequality, remains around .48 and a quarter of the country’s population is considered severely impoverished.  

These sorts of contrasts appear in many facets of Peru today.  It is now called an an upper-middle income nation by the World Bank, but has extraordinarily impoverished indigenous communities living in the Andes.  The Peruvian economy is widely touted as one of the Latin American economies most open to foreign business, but has ongoing social conflicts related to unfavorable conditions in the mines which are driving the nation’s growth and are responsible for 60% of all export revenue.  Its business climate is also ranked as one of the best, it takes 30 days on average to start a business, but it had nation-wide anti-corruption protests that turned violent this past summer. 

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 In the developing world, remittances from family members working abroad are a means of subsistence for many people. Unfortunately, with the stagnation of the European and American economies, the flow of remittances to developing countries has decreased since the onset of the recession, reducing incomes for those who rely on them. And since a major part of this reduction is tied to the costs associated with transferring remittances through formal economic channels, this means that even as the flow of remittances decreases, the reliance on less reliable informal means for transferring money is going to increase.

The increasingly precarious nature of the remittance sector is problematic from a development standpoint. Remittances are generally considered much more effective than traditional aid, since they directly target the poorest and they bypass the bureaucracy and corruption of government projects or aid disbursement. Last year, remittances to the developing world far exceeded expenditures in official development aid – a sum the World Bank estimates at over $400 billion. And this number only includes “official” remittances sent by formal means, not the large amounts sent through unrecorded, informal channels – channels which are on the rise, due to high fees and other barriers to accessing formal banking systems. 

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A new wave of rebellious political movements is gaining prominence in Europe, based on the tenets of net neutrality, government transparency, citizen participation, and civil liberties. Originally launched as (somewhat tongue in cheek) protest movements against the dominance of traditional parties, there are now two ‘e-democracy’ political parties serving in government – one in Germany, with the Pirate Party, and the other in Italy, the Five Star Movement (M5S). While these movements are revealing deep and important currents of dissatisfaction in the European body politic, the effectiveness of their governance and its implications for their future remains to be seen.

These parties, which combine civil libertarianism with a sort of techno-utopianism, have proliferated across Europe at the same time that traditional parties face challenges to their legitimacy due to the Eurozone crisis. Their recent success, however, only heightens questions about their idiosyncratic political platform and inexperienced candidates. It remains an open question whether the support of a small but not insignificant bloc of voters translates into true legitimacy for the movement’s ideas, or whether they are simply the beneficiaries of pent up political frustration.

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A series of horrific industrial accidents in Bangladesh has revived the debate over labor rights, workplace safety, and the ethical responsibilities of multinational corporations in policing their own supply chains. These incidents have been centered on the textile and ready-made garment (RMG) industry, which raises difficult questions about the tradeoff between economic development and the dignity of individual workers. To groups like the International Labor Organization (ILO), however, this is a false choice, and labor advocates argue that securing safe working conditions and adequate pay is a key part of sustainable economic growth.

The textile industry is the driving force of Bangladeshi industrialization, and is central to the economy of the desperately poor nation. Exporting some $19 billion a year and  representing the world’s second largest apparel sector (after China), the industry draws many of its millions of workers from the subsistence farming of the countryside to the hastily assembled factories on the outskirts of the teeming capital, Dhaka. Since 1974, with the adoption of the global Multi Fiber Arrangement, Bangladesh has been granted preferential access to EU and US markets, sparking the rapid expansion of the RMG sector.

Despite the benefits of the industry, the human costs are high. While the West seems, by this point, largely resigned to the low wages earned by those who stitch and sew its designer clothes, the recent spate of deadly events have been too gruesome to ignore. In November of 2012, the Tazreen Fashion Factory caught fire, killing 117 in the deadliest factory fire in the nation’s history. Then, on April 24, 2013, the eight-story Rana Plaza building in Dhaka collapsed, killing 1,127 workers in the world’s deadliest garment factory accident to date. The building had housed apparel companies that manufactured for a number of major international brands, including Benneton and Wal-Mart.

The outcry over the Rana Plaza disaster came swiftly, especially after it came to light that cracks had appeared in the building’s foundations the day before but the workers had been ordered back to work regardless. A government report released on May 22^nd concluded that the complex had been “constructed with substandard materials and in blatant disregard for building codes” and suggested that the building’s owner had bribed local officials to overlook these fatal deficiencies. By that time, the EU had already threatened punitive action, including the restriction of Bangladesh’s preferential access to its markets, until the country improved its safety standards.

This is just the most recent eruption of a longstanding debate over whether sweatshop conditions and low labor standards are an inevitable stage of industrial development, and, if not, how much developed countries can do to prevent them. Some argue that punitive actions will scare away risk-averse international capital, and hurt millions of workers for whom a dangerous job is better than no job. Most recently, Bangladesh’s Commerce Secretary Mahbub Ahmed expressed this view after the Rana tragedy, arguing that “if the EU or any other buyers impose any harsh trade conditions on Bangladesh it will hurt the country’s economy…millions of workers will lose their jobs.”

Fortunately, there is evidence that this is a false choice. International efforts have shown that there is a third way of cooperative, collaborative enforcement that brings all of the stakeholders together to achieve better labor standards – without the disruptions and job losses of economic sanctions. In fact, is becoming increasingly clear that ignoring labor and safety standards will only backfire for businesses, as social media and socially conscious consumers raise the public pressure on companies to follow ethical practices.

The case of Cambodia, another country dependent on its garment industry, offers an instructive comparison. There, the ILO brought together the Cambodian government, the country’s labor unions, and the private sector Garment Manufacturers Association to create a system for monitoring the sector’s labor standards in exchange for tariff-free access to the US market. It’s a program modeled on the structure of the ILO itself, which is an organization equally divided between labor groups, governments, and business. As a result, while not perfect, the Cambodian garment sector has been largely free of the kind of disasters and abuses that have plagued Bangladesh.

One of the lessons from Cambodia is that private sector engagement is crucial, and in Bangladesh many companies have recognized that the status quo cannot continue. Dozens of European companies – including the world’s two biggest fashion retailers, Inditex and Hennes & Mauritz, as well as Swedish company H&M, which is the largest buyer of apparel from Bangladesh – have signed onto the Accord on Factory and Building Safety in Bangladesh, a pact between business, government and labor to improve safety standards. Unfortunately, most major US companies have largely rejected the Accord, arguing that it would be too expensive and open them up to burdensome litigation. Among these retailers are Wal-Mart and Gap – huge operations whose market share would be of immense value in convincing the Bangladeshi government and local business to attack the problem energetically.

American companies should take to heart the lessons that their European counterparts have already learned: that their long-term economic sustainability, as well as their reputations among their customers, depends on decent and safe working conditions for the workers at the base of their supply chains. Signing onto the accord would be a good first step towards moving away from an ad hoc approach – simply responding to each disaster after the fact while leaving the underlying dynamics in place – and towards a coordinated global response.

Last week, Secretary of State John Kerry represented the United States at the African Union’s 50^th Anniversary Summit. It presented him with a unique opportunity to address the changing relationship between the United States and Africa in a very public setting, and his speeches during the trip represent a significant shift in priorities – a shift that the Obama administration has been working on since 2009.

During his press conference with Ethiopian Foreign Minister Adhanom Tedros, Secretary Kerry argued that US priorities in Africa should be reconsidered, in order to put economic development and commercial ties at the center of the relationship, over and above the sometimes flashier issues of security, governance, and human rights. Minister Tedros echoed this sentiment, stating that “the economics should be the focus, especially in our future relationships.”

Revamping the focus of US-Africa relations reflects the increasingly popular idea that a holistic approach, rather than a laundry list of policy objectives, better serves the long term interests of the US as well as those of our partner countries.

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Many Americans were surprised to hear President Obama in his recent State of the Union address identify a major new free trade agreement as one of his administration’s second term priorities. He was referring to the Transatlantic Trade and Investment Partnership (TTIP) between the US and the European Union. And while Americans may have been hearing the name for the first time, it is an agreement long in the making – and with a long ways still to go.

The idea began with the 2011 Working Group on Jobs and Growth, appointed by EU-US Summit process. This Working Group was tasked with exploring ways to boost growth and employment between the two blocs, and it identified a laundry list of areas in which closer cooperation and integration could boost trade, streamline commerce, and create jobs.

But the Group’s conclusions were only introductory, tentative steps. Even with the public commitment of President Obama, the US and the EU have a big task in front of them in order to seal an agreement that will satisfy the diverse industries and interests of fifty US states and twenty-seven European countries. While the Working Group’s recommendations may seem straightforward, getting those recommendations through the bureaucratic procedures of the US and the EU can mean that implementation of the trade partnership could take years.

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Ever since the dramatic decline of the Cypriot banking sector the world has been trying to find “the next Cyprus.”  Across the EU and beyond many regional banking hubs exists to serve niche markets.  Some have developed recently in reaction to new markets opening up and the fall of the Soviet Union, while some have existed for hundreds of years. 

While it is easy to look at a large banking sector in a small country and get worried, most of these countries have well regulated, transparent, and modern banking practices and serve an important role in global trade.  As the world becomes flatter, and economies more intertwined, the global banking system has become exponentially more important and necessarily more complicated. Regional banking hubs serve a more crucial role now than ever before, which makes the recent trend of cavalierly labeling countries “the next Cyprus” dangerous to the system as a whole.

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The close friendship of Beyonce and Jay-Z with President Barack Obama and First Lady Michelle Obama is well documented.  Years of fundraisers, private engagements, and even the quick handling of a high-profile Inauguration lip-syncing scandal would lead one to believe that their creative duo’s music and business savvy is also matched with a fair amount of political sense. 

But last week, somewhere between the White House, the Treasury Department, Manhattan and Havana something went wrong. The celebrity couple decided to celebrate their five-year anniversary with a trip to Cuba – and instead ended up inadvertently re-opening the debate over the US’s relationship with the communist island, a debate the Obama Administration has tried to push aside for years.

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