Category Archive: Analysis

  1. Realignments

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    Luiz Inácio Lula da Silva may have won last month’s presidential elections, but the strength of Bolsonarismo has been confirmed. In both houses of the National Congress, Bolsonarismo and its allies made gains, overcoming the traditional right wing. In the Federal Senate, Bolsonaro’s Liberal Party (PL) won fourteen of the twenty-seven seats up for election, giving it the largest number over all. In the Lower House, despite the fact that the left has regained some ground, the PL nevertheless elected ninety-nine deputies—a larger share than any other party. The rural, evangelical, and security caucuses doubled in size. The alignment of the parliamentary forces may be more pragmatic than ideological, but as Souza and Caram put it, the Congress elected in 2022 is still “the most conservative since 1964.”1

    Bolsonaro also had a strong showing at the state level. Thirteen of the twenty-seven elected governors gave their support to Bolsonaro; only ten supported Lula. In the state of Sao Paulo, former Bolsonaro minister Tarcisio de Freitas won over 2.5 million more votes than the Workers’ Party (PT) candidate Fernando Haddad. With de Freitas’s victory, Bolsonarismo will politically dominate in Brazil’s richest state. Elsewhere, those who broke with Bolsonaro in 2022—Janaina Paschoal (lawyer responsible for the impeachment request against former President Dilma Rousseff), former Education Minister Abraham Weintraub, and conservative activist Joice Hasselmann—were severely punished.

    The vote for Bolsonaro himself is significant: about 51 million votes in the first round and 58.2 million in the second round. In every single state, support for Bolsonaro grew more than for Lula. Nonetheless, Lula’s victory across the Northeast (winning between 60 and 70 percent of the vote in each of those states) remained decisive, along with the fact that he managed to reduce the damage in Bolsonaro’s stronghold of the South and Southeast.

    What explains Bolsonaro’s electoral popularity? His terrible record in government is well known. During his single term as president, poverty and inequality spiked, public services like education and health suffered, and environmental destruction skyrocketed. The projected annual economic growth for the Brazilian economy between 2020 and 2022 is just 1.1 percent; the global average is 1.8 percent.2The government’s notorious mismanagement of the pandemic produced the tragedy of 700,000 deaths. Corruption scandals—in areas like vaccine purchases and education—were widely publicized.

    Hypotheses about the supposed conservatism or irrationality of Brazilian society are superficial and inadequate. Costa and Weiss, by contrast, identify four main sources of Bolsonaro’s power: the permanent mobilization of his radical base; the expropriation of nature, public spaces, and workers’ bodies; the discursive construction of popular identity; and the formation of a system of fear, in part by arming sections of the population. Such an analysis is convincing but focusing on how Brazilian financialization has impacted the voting patterns of both the middle and lower classes offers a richer picture.

    The status quo

    For all his social conservatism, Bolsonaro’s term in government has been defined by the standard neoliberal orthodoxies. The turn to deregulation, privatization, labor flexibilization, and fiscal austerity began during the first post-dicatorship government of Fernando Collor de Mello, which was elected in 1989. After Collor’s impeachment in 1992, Fernando Henrique Cardoso carried the flame. His tenure as president (1994-2002) was characterized by intense privatization, the contraction of public investment, and fiscal austerity. Manufacturing was all but crushed and the labor share of national income steadily declined. The result has been the reprimarization of Brazilian economy, which has diminished technological progress.

    When Lula first ran for president in 1989, he was the preferred candidate of middle-class voters. They continued to support him in his unsuccessful presidential bids in 1994 and 1998, as Fernando Henrique Cardoso oversaw vast expropriations of public assets and social guarantees. Ultimately, this was converted into votes for Lula in 2002, when he was elected in no small part thanks to mass middle-class support.3

    When the PT was elected in 2002, it did little to intervene in the neoliberal status quo that had been in place since 1990. Thanks to the commodities boom of that decade, the government was able to introduce some progressive measures such as the a relative valuation of minimum wage, but at  the same time, the government relied on expanding individual credit as a means of access to social services. With the expansion of consumer credit, both the middle and lower classes became dependent on the financial system. In the context of deregulated markets, which Lula had done little to bring under control, debt soared. The working class, which saw expanded access to consumption, remained loyal to Lula, but the middle class had seen its fortunes fall and frustration with the PT set in.  Devoid of collective identity, they embraced the market as the ultimate solution to their woes, seeking to liberalize financial flows (to gain more access to credit and so expand their assets) and to increase foreign direct investment (for skilled jobs and easier access to luxury goods).4 With such demands, the middle class became natural supporters of the openly pro-market policies.

    Amid this class realignment came the global crisis of 2008. The impact of the collapse of commodity prices in Brazil was devastating. By the time that Dilma Rousseff came to power in 2011, economic growth had stalled, with GDP plummeting from 7.6 percent in 2010 to 0.1 percent in 2014. Social spending decreased still further. In 2013, for example, the spending on tax and social-security waivers was estimated at BRL 218 billion, while public health and education, together, received BRL 163 billion.5 This set the stage for a middle-class backlash that ultimately exploded in June 2013. Sparked by demands for improved public transport, the protests quickly became a battleground for different ideological strands in Brazilian politics. Thanks to strategic interventions by the mainstream media, which had an interest in turning the tide against the PT, and police repression against leftist movement, the protests gradually turned to the right, becoming a posteriori a popular base against Rousseff.6

    This became the backdrop to Michel Temer’s parliamentary coup  in 2016. Temer capitalized on the protests and used them to favor the interests of financial investors; this included attacking labor rights and imposing a social spending cap for twenty years. With Bolsonaro’s election in 2018, thanks to massive support from the middle classes, privatizations increased further. He has dished out more austerity, including a major pension reform raising the retirement age for women and the number of qualifying contribution years, as well as an aggressive reduction in public spending in education, science, health, and environmental protection. The Brazilian economy, despite fourteen years of PT rule, has been given over to the markets.

    Bolsonarismo shaken

    The Covid-19 crisis dealt a blow to Bolsonarismo. With 700,000 fatalities, Brazil has the worst record in the region. The nation’s overstretched public health system was exposed as hospital beds ran out, medicines were in short supply, and vaccines were delayed. Despite his neoliberal orthodoxies, under the pressure of the pandemic, Bolsonaro was forced to massively increase public spending, creating an Emergency Aid Program that covered 67 million beneficiaries. Cash transfers and sick-leave schemes kept low-income households afloat. These emergency measures quickly came into conflict with his advocacy for fiscal discipline, and so the administration reintroduced austerity in 2021 by creating a subceiling within the social spending cap. Minister of Economy Paulo Guedes advocated to further squeeze public servants’ salaries. In the second half of 2021, GDP shrank. The government saw resignations from ministers Luiz Henrique Mandetta (former Health Minister) and Sérgio Moro (former Justice Minister). The Supreme Court, too, made public statements against Bolsonarist denialism, as did some branches of the business sector.

    Bolsonaro’s efforts to recover couldn’t reverse the damage. He attempted to make new alliances with the traditional clientelist right, intensively mobilized his base, and called for mass protests on Independence Day. Most desperately, his government implemented a package of social benefits and subsidies worth BRL 41.25 billion, but to little avail. In the wealthier and higher-educated Southeast, the PT gained 7.7 million votes on its 2018 result. In São Paulo State, Lula gained significant ground and though Bolsonaro was still victorious there, Lula hemorrhaged 1.1 million votes.7 In the southereastern state of Minas Gerais, Bolsonaro was defeated. The middle-class votes that Bolsonaro depended on in 2018 were more divided in 2022.

    The Lula presidency

    If the pandemic was responsible for weakening Bolsonaro’s support among the middle classes, his relatively strong showing at the polls in October shows that it did not wreck irreparable damage. The middle class in Brazil remains wedded to the neoliberal model that has been the bedrock of Bolsonaro’s term in power. As for the working class, it remains to be seen how increased household debt will influence their political preferences. Election results indicate that the Northeast vote for the PT was slightly down compared to 2018.8 If working-class debt continues to expand as a means to maintain current levels of consumption, including access to social services, Lula will face major challenges ahead.

  2. Development Bank Self-Sabotage

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    When the World Bank and IMF make radical noises, the US is typically the voice of restraint. So it came as a surprise to casual observers when, at October’s Annual Meetings, Treasury Secretary Janet Yellen urged the Bank and other multilateral institutions to overhaul their lending practices and get more money out the door more quickly.

    Yellen set the ambitious timeline of December for delivering a roadmap for increased lending. Some speculated that she was assigning a task at which David Malpass—the World Bank head who infamously fumbled questions on whether he believes in human-caused climate change—is likely to fail. 

    This new posture has given life to reforms on which multilateral financial institutions have long dragged their feet. (Just this past summer, the World Bank even attempted to suppress a key report commissioned by the G20 urging greater lending.) And charismatic leadership and nimble advocacy from the Mottley administration in Barbados has made technical questions about lowering the cost of capital politically urgent. 

    Multilateral Development Banks are subject to a snarl of constraints. Many of these are political checks designed by shareholder nations—the US Congress, for example, can take some blame for the state of the World Bank. But a near-dogmatic inertia and conservatism also severely constrict their scope. The lenders take on the constraints applied to commercial banks, which have little relevance to a publicly-backed intermediary driven by development goals and other policy mandates. They willingly ignore callable capital, the colossal solvency guarantee provided by shareholder governments. “[T]hey cannot simply apply commercial bank capital adequacy standards such as the Basel III guidelines,” protests an ODI report—but that is what happens.  

    Banks and their shareholders lash themselves to the goal of maintaining AAA status from credit ratings agencies. The G20-commissioned report that the World Bank tried to block found that each of the Big Three ratings agencies has a different methodology for rating MDBs. With one agency, a hypothetical bank could triple its lending and retain its AAA credit rating, but only increase by 34% with a second agency while keeping in that bracket, and only by 11% with a third. 

    The institutions that are supposed to be vehicles for development and climate protection in the poorest countries are being evaluated as if they were firms seeking an ESG rating: opaquely and inconsistently. Some assessments suggest that MDBs could collectively free up as much as a trillion dollars in lending—without taking a hit to their credit ratings. 

    Scrutiny of the MDBs’ creditworthiness might also turn to their loan books. What does the particular mission of MDBs mean for their own credit risk? Incredibly, this is something that MDBs can explore in some detail as they have their own database produced by a consortium of policy lenders and development finance institutions. The Global Emerging Markets Risk Database, known as Gems, pools MDB credit default data in a centralized, granular database. Created in 2009 by the European Investment Bank (EIB) and the International Finance Corporation (IFC), it potentially gives credit ratings agencies and shareholders transaction-level information about the performance of loans. 

    In its report earlier this year, the G20 recommended strengthening Gems by turning it into a stand-alone entity with legal status and secured budget. But even in its existing form, it has the capacity to reduce cost of capital, which is currently heavily constraining energy and infrastructure investments. It might even help to achieve the goal of “mobilizing private finance,” or at least identify which projects are more suitable to commercial finance. 

    Instead, the MDBs make little use of the potential to look into their lending, eschewing the benefits of their special characteristics along with taking on the constraints of commercial banks, which serve a very different function and operate quite differently. 

    Of course, MDBs are wary of reputational damage from pushing out money too quickly. But where climate is concerned, speed is justice. With the recent passage of multiple industrial policy bills to reshore manufacturing, the US has recognized that ambitious investment requires taking on risk; so far, that attitude is missing from multilateral institutions.

    Even as the World Bank comes up with its work plan to free up more lending, we shouldn’t be too enamored of technical solutions to political problems. It will ultimately be necessary to go further, by overcoming the domestic politics that motivate intransigent shareholders.

  3. The Wall Street Consensus at COP27

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    At COP26, US Special Envoy for Climate John Kerry sanguinely declared the need to “derisk the investment, and create the capacity to have bankable deals. That’s doable for water, it’s doable for electricity, it’s doable for transportation.” Derisking is financial speak for the public sector—be it through official development aid, multilateral resources or national fiscal resources—accepting to take some risks from private financiers in order to persuade them to invest, public efforts variously described as “mobilizing private finance”or “blended finance.”  In response, the UN Special Envoy for Climate and head of the Glasgow Financial Alliance for Net Zero (GFANZ) Mark Carney announced GFANZ’s intentions to work in partnership with governments and multilateral development institutions to mobilize its $130 trillion for green purposes.

    At this year’s COP27 in Egypt, Carney was less triumphant. On the contrary, he defensively explained why the GFANZ financiers had dropped the partnership with UN Race to Zero, intended to police their green pledges and reduce pervasive greenwashing. No longer flanked by top financiers like BlackRock’s Larry Fink (who reportedly stayed away to avoid further incensing the US Republican party), and amid several reports denouncing the systematic failure of the GFANZ-Global North mobilization drive, Carney cut a lonely figure. 

    Indeed, Global North countries have consistently underdelivered on long-standing commitments to mobilize $100 billion climate finance annually, the bare minimum estimate of green financing needs for Global South countries. For 2020, the OECD estimated a $16 billion gap in public and private finance mobilized, far more optimistic than Oxfam’s estimates at one-third of that (around $24 billion).  

    Based on these numbers, and the event’s proceedings, it is tempting to conclude that the Wall Street Consensus—the global political agreement and ideological rationalization that decarbonization must be finance-led, with the state derisking private investments into green assets—has lost momentum from its heyday at COP26. 

    There is, however, a more compelling account of recent developments: the “roll-back” stage of the Wall Street Consensus, when carbon financiers organized strategically to roll-back the state’s newfound willingness to regulate dirty credit, has given way into a to “roll-out” stage, in which the state and supranational organizations scale up monetary, fiscal, and regulatory derisking architectures for green asset classes. 

    Roll-back WSC

    The WSC provides the ideological software for claims that global finance should be the anchoring point for green transitions. Take the CNBC COP26 panel on mobilising private finance, with Larry Fink (CEO BlackRock), Jose Vinals (CEO Standard Chartered), Alison Rose (CEO NatWest), Andy Briggs (CEO Phoenix), Greg Case (CEO AON) and David Schwimmer (CEO London Stock Exchange). Panelists agreed that decarbonization was fundamentally a challenge of crowding private credit into green activities, by blending public and private finance. Asked who should decide where finance flows, the chorus led by Fink responded in unison: financiers, especially in the US, are taking the lead, but multilateral spaces like COP26 were critical for regulators to catch up and establish derisking partnerships. 

    These cheery notions of public sector catch-up and derisking partnerships served to mask concerns about a more muscular regulatory approach, one that could discipline carbon financiers by penalizing high-carbon lending. In Europe, 2020 and 2021 saw significant regulatory investment in the design of public taxonomies to categorized green (and, by exclusion, dirty) activities. 

    Perhaps more worrying for the Larry Finks of this world, regulators made significant concessions to climate activists through developing criteria for double materiality, carbon bias in monetary policy, and dirty penalties. BlackRock, most notably but hardly the only carbon financier, had lobbied aggressively on each of these decarbonization battlefronts. As we know from Finance Watch, it strongly opposed double materiality in Europe’s Sustainable Finance taxonomy, seeking to persuade regulators that dirty credit had no material relevance for climate regulation. BlackRock lost that battle, and risked losing a more significant one. Central banks suddenly threatened to drop a crucial obstacle to disciplining carbon financiers—the holy grail of market neutrality. 

    The principle of market neutrality reassures central banks that their unconventional purchases of corporate bonds have no distributive consequences as long as purchases reflect existing market shares: if, say, the corporate bond market traded Shell and Total bonds equally, the ECB would be market neutral if it purchased half Shell, half Total. But market neutrality masks a carbon bias, since the ECB subsidizes fossil companies by purchasing their bonds. Without being bound by the market neutrality principle, central banks could decarbonize monetary policy and curtail private finance’s contribution to the climate crisis, thereby minimizing financial stability spillovers, by explicitly targeting dirty credit assets. The mandatory decarbonization of private finance was politically and institutionally possible.

    Financiers, then, convened at COP26 with the goal of rolling back mandatory decarbonization, altering the grammar of climate finance and extinguishing concepts like carbon bias or dirty penalties from regulators’ vocabularies. Their appeal to partnerships had an added strategic benefit, seeking to defang calls from countries in the Global South for mandatory involvement of private investors in debt restructurings. 

    At COP26, there were signs that their strategy was working. The Network for Greening the Financial System—the 100-plus central banks designing climate rules together—made disclosure of climate risks and stress test scenarios the centerpieces of its press release. Neither the host Bank of England nor the ECB fought to put their own efforts towards mandatory decarbonization on the table, instead agreeing on a return to the 2019 voluntary decarbonization approach. In part, this was a compromise with the US Federal Reserve, whose lack of appetite for decarbonization changed little from the Trump to Biden Administrations. It later turned out that the Bank of England’s governor, Andrew Bailey, had plans to join the roll-back coalition. Inflationary pressures in early 2022 provided the perfect opportunity. The Bank announced it would sell all corporate bonds to shrink its balance sheet, abandoning efforts to discipline carbon financiers. 

    The Russian invasion of Ukraine unleashed a new appetite for fossil fuels and further weakened public resolve to curtail dirty financing. Under pressure to deliver on inflation targets, central banks could have chosen to deploy “Ecological Tightening” (ET) instead of Quantitative Tightening—selectively increasing the cost of borrowing for dirty firms while coordinating with governments to fix dysfunctional European energy markets that pegged prices to the most expensive fossil wholesale supplier. But the limits of the inflation targeting regime that institutionalizes monetary dominance became painfully clear, leading instead to zugzwang central banking—where each possible course of action that does not seek to dismantle the dysfunctional macrofinancial architecture leads to a worse outcome, including decarbonization. Even the ECB, the last standing champion of mandatory greening, missed the ET opportunity. Its concrete decarbonization plans, announced in late 2022, fell significantly short of a Paris benchmark due to the benign treatment of carbon finance. Climate stress tests and “supervisory expectations” for transition plans notwithstanding: roll-back WSC was always about reversing mandatory decarbonization. 

    Roll-out WSC

    Global inflationary pressures have since reinforced the political appeal of derisking. Derisking provides a compelling status-quo political message: in the new age of geopolitical tensions, energy competition, higher interest rates, and massive global debt pressures, decarbonization is possible without massive public investment. All it takes is tinkering with risk/return profiles to make projects investable, that is, transferring some risks from private to public balance sheets. In a green hydrogen project, for example, the state can absorb risks from private investors in various ways: fiscal derisking (including equity stake for the state; protection against currency, demand, or political risk; price guarantee for surplus renewable energy), monetary derisking (of green bonds issued by project, preferential loans or exchange rates) and regulatory derisking (preferential regulatory treatment for green hydrogen producers, green hydrogen input requirements for hard-to-abate sectors, removal of subsidies for state-owned incumbents). Civil society organizations concerned with worsening human right outcomes, since investable projects (or green assets) in water, electricity and transportation, housing, education, healthcare or energy have to generate cash flows that pay investors, can easily be dismissed on macroeconomic grounds: with shrinking fiscal space, critiques of derisking are just “perfect is the enemy of good” wishful thinking. 

    The overarching policy question at COP27 has thus become “how do we scale up derisking to make decarbonization investable for BlackRock?” Three distinct examples are worth exploring: the Network for Greening the Financial System (NGFS), the Liquidity and Stability Facility (LSF) for Africa, and green hydrogen and Just Transition Partnerships.

    The NGFS, now under the presidency of Singapore, outlined four key initiatives at COP27: climate scenarios, better climate data, capacity building for climate analysis in central banks and blended finance. The first three are firmly anchored in the logic of voluntary decarbonization, the fourth explicitly about derisking. 

    The Blended Finance Initiative aims to “improve risk-reward ratios for marginally bankable transition projects to attract private capital,” through “catalytic and concessional funding from the public sector and philanthropic sources to crowd in multiples of private capital,” by “absorbing a portion of project risks.” Central banks can play a role as “convenors, facilitators and influencers.” 

    Influencer central banks, we learn from the Blended Finance Initiative, will directly engage in derisking exercises to create “innovative financing instruments” and “attract a broader range of private investors” into new asset classes, working in conjunction with MDBs. Indeed, the Singapore Pavilion, where the NGFS was institutionally located, dedicated Day Two of Finance at COP27 entirely to examining obstacles to scaling up derisking. 

    Second, the COP27 announcements put the Liquidity and Sustainability Facility (LSF) at top of a list of initiatives to reduce the cost of green borrowing for African countries, alongside multilateral guarantees and other market-building measures. Developed by the United Nations’ Economic Commission for Africa in partnership with the investment manager PIMCO, the LSF is a vehicle for derisking African sovereign debt, through a repo facility that provides concessional repo financing to private investors in African sovereign Eurobonds. The repo instrument, it is worth recalling, has been at the centre of recent financial scandals, be it the run on pension funds in the UK, or the implosion of crypto markets triggered by the collapse of FTX, because of its leverage-building capacity.

    The LSF constructs a fiction of liquidity for sovereigns, ignoring the well-know questions of cyclicality hardwired into the repo instrument, perverse incentives for African countries to prioritize foreign currency debt like Eurobonds, and institutional conflicts between the commercial managers of the LSF and national central banks. At COP27, the LSF announced its USD 100 million inaugural transaction, financed by Afreximbank, with a basket including Egypt, Kenya and Angola Eurobonds. The original LSF ambitions to raise $50–100 billion via senior lending from OECD central banks or the SDR allocation were not met. And so an Africa-based institution is diverting trade finance for African companies into subsidies benefitting foreign investors into African Eurobonds. The cui bono from derisking couldnt get a starker answer.

    Finally, the announcements emphasized derisking-based energy transitions through “transition partnerships” and green hydrogen projects. The International Partner Group (US, EU, UK, France, Germany, Norway) announced specific plans for two Just Energy Transition Partnerships, for South Africa and Indonesia, with future plans for Vietnam, Senegal and India. The $20 billion derisking Indonesia Partnership promises $10 billion mobilized by IPG members, and $10 billion from GFANZ, to support a JETP Investment and Policy Plan for the energy sector. While Indonesia may be strategically using its critical resources—nickel, tin, aluminium—to renationalize value chains and promote technological upgrading of national industrial champions, it is also playing a derisking game with international investors. That this game might turn out expensive for the Indonesian state and its citizen—who is loading risks from private investors—is never mentioned in the upbeat press releases. Yet, as the Institution of Economic Justice points out, the derisking at the core of the $8.5 billion South African Partnership effectively commits South African fiscal resources to make private renewable projects investable at the expense of fuel subsidies for poor households. 

    The South African partnership is a stark reminder of the pressure for Global South countries to join the global rush for green hydrogen.  Europe has put green hydrogen at the core of its RePowerEU plan to delink from Russian fossil fuels. By 2050, it expects almost a quarter of global energy demand to be met by green hydrogen. RePowerEU aims for half of Europe’s demand for green hydrogen, estimated at 20 million tons annually by 2030, to be produced locally, the other half imported. At COP27, the EU signed several green hydrogen import partnerships, including with Namibia, Egypt, and South Africa. Derisking is explicitly at core of these arrangements, with the EU committing to mobilize private capital for megaprojects in the Global South. Such partnerships reduce the scope for African and other countries to strategically control green hydrogen chains, and threaten to  trap them into the same patterns of unequal ecological exchange that have characterized carbon capitalism, this time as exporters of green commodities, generators of financial yield, and consumers—but not producers of clean tech. 

    Even the better reported battles over numbers at COP27—for instance on loss and damage—hide the derisking devil in the details and language of “mobilization.” How will these funds be spent? How much of the public grants or loans from the Global North will be deployed for derisking private investments in the Global South? Ultimately, derisking is a tool against the very things that would make the green transition just: adequately funded public services, affordable access to renewable energy, decent housing, and thriving green manufacturing sectors in middle and low income countries. It may well be that derisking partnerships can be reimagined to give the state space for disciplining rather than simply subsidizing private finance, but so far, there is little effort in that direction. 

  4. Collective Action and Climate Finance

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    At UN climate summits, the items that appear on the agenda are usually those that advocates have fought hard to include. This year’s COP27 meeting in Egypt is no exception. Years of effort have culminated in getting loss and damage—finance for unavoidable climate harms—on the agenda and in the central discussions.

    One agenda fight that has animated meetings this year came in the form of a push by the EU and France to add an item from the Paris Agreement that was not on the agenda, Article 2.1c: “Making finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development.”

    A letter from the French and EU delegations to the UNFCCC argues that including 2.1c is “an essential means to achieve the mitigation and adaptation goals in article” and could defuse issues, including the relationship between 2.1c itself and Article 9 of the Paris Agreement, which sets out a framework for mobilizing the still-undelivered $100 billion per year promised from developed to developing countries.

    To the Europeans, 2.1c represents a potential way to address finance writ large. Harmonized, climate-aware financial rules around the world could, the logic goes, shift the colossus of global capital markets to make a cleaner, more resilient world.

    The indeterminate language of “aligning financial flows” has been tested as an avenue for driving change in the Global North, and been found wanting. Financial climate standards and regulations have been deployed, or at least attempted, in numerous countries. Progress tends to be incremental at best, and where industry or state interests are directly challenged, financial regulation tends to be weakened or unwound (cf, for example, the EU allowing natural gas investments to be included in a sustainable finance taxonomy).

    There are genuine fights over finance taking place, and the “flows” language of 2.1c—together with much of the literature on global climate investment needs—elides the most important element. In the Global North, the blocking role of finance is more a function of limited political willingness to intervene in energy systems, export industries, and industrial policy. This is what holds back the energy transition—not a lack of financial rules.

    In the Global South, finance is indeed an issue—of access, and of terms and cost. What most developing countries need to decarbonize or develop cleanly is, simply, access to good finance and fiscal space in the face of a worsening climate, which tends to evade the investing decisions of private interests. 

    No prisoners?

    The language of “alignment” exemplifies an approach to climate politics that has probably already peaked, based on the premise that no country really wants to decarbonize, and that diplomacy can change that. The global climate policy architecture is structured around a belief that the biggest impediment to climate action is the collective action problem. 

    But it’s domestic economic and political interests that determine when and how countries cut emissions—not free riders and prisoners’ dilemmas. During periods of US intransigence, Akins and Milenderberg argue, the EU, Germany, Mexico, and New Zealand all pursued climate policy. Similarly, Colgan, Green, and Hale posit that, at both domestic and international level, owners of climate-vulnerable assets and owners of high-emitting assets are in an existential contest, from US utilities fighting homeowners’ selling rooftop solar back into the grid, to Saudi Arabia’s undermining of UN science panel work on the 1.5C warming limit. Material commercial and state interests and political veto players play the determinative role. 

    The outlook for multilateralism is bleak. But interest blocs shift, and they are doing so as the energy complex evolves. Renewables, storage, and electrification are becoming cheaper, meaning cutting emissions is as well—and incumbent interests are less immune to change. “Given the economic implications of the ongoing energy transformation, the framing of climate policy as economically detrimental to those pursuing it is a poor description of strategic incentives.” Mercure et al write.

    The analysis suggests a different way to view 2.1c and the entire range of discussions at COP27, and perhaps an explanation of what it is that international fora do. (Disparaging climate summits is easy after almost three decades of them have failed to arrest greenhouse gas emissions.)

    Changes are made possible by another, often underestimated feature of the COP forum: a two-week long opportunity to flex soft power, and for charismatic and persuasive leaders to build coalitions beyond the scope of what is formally required in the Paris Agreement.


    An announcement last year at COP26 of a $8.5bn “deal” for South Africa to close and replace its domestic coal power supply was followed this year by a $20 billion “deal” for Indonesia to something similar. (Indonesia had insisted on a lower cost of capital than the market was offering.) The fact that this second arrangement was also developed outside of UNFCCC processes and announced at the G20 meeting could be considered a win for climate diplomacy reaching outside of its UNFCCC wheelhouse. The connection became stronger still in the G20 leaders’ communique referencing the narrowing window for limiting warming to 1.5C.

    One of the smaller but more significant events at COP27 was the launch of a model term sheet for incorporating resilience clauses into sovereign bonds. This feature has already been included in bonds issued by Grenada and Barbados, but a working group including IMF, MDB, and private sector officials produced a template published by the international markets body, ICMA. This would be a gradual way to make sovereign debt more accommodating to climate-vulnerable countries, by allowing those struck by disasters to suspend debt repayments. Avinash Persaud, Barbados climate envoy, said the clause would immediately release 18% of GDP if a crisis hit his country. Like collective action clauses that were introduced into sovereign bonds to protect from “holdout” behavior, the proposed climate resilience clause will take some time to become widespread; they can’t be retrospectively added to issued bonds. An HSBC official, Alexi Chan, confirmed during a COP panel: the effectiveness of the model clause in helping vulnerable countries will depend on whether his bank and its peers actually implement it.

    Another test case for both public and private finance is Sri Lanka’s new “climate prosperity plan,” a combination of national industrial strategy and prospectus created under the V20 alliance of climate vulnerable countries. The draft plan envisages flagship projects such as an offshore wind “megaproject,” and an overhaul of transportation to include electric vehicles, light rail and bike paths, and a $100 million subsea power cable to India’s electricity grid as a source of export earnings. Sri Lanka’s government developed the proposal while racing to secure debt restructuring and an IMF package after it defaulted earlier this year. It has been hit hard by a combination of rising commodity import prices, an exchange rate hurt by Fed rate rises, and plummeting tourism revenues thanks to COVID. One of the biggest single items in its plan speaks volumes of the real problems in climate finance: $2 billion for forex hedging.

    Systemic financial reforms, which would help all countries, can be spurred on by COP, even if it’s only through amplification. The repeated references throughout COP27 to bold proposals like the Bridgetown agenda—which includes IMF and MDB reforms and a new, $500bn facility for the Global South—bode well, as do the G20 communique’s exhortations on climate change in the midst of a war. The UNFCCC meetings do appear able to provide signaling and impetus for outside processes. Within the negotiations, however, the creation of a Loss and Damage fund was the focus of fraught negotiations in the final days and hours of COP27. Material financial transfers to the poorest and most climate vulnerable countries, whose voices get little support elsewhere, is something it should be able to deliver. 

  5. The Sacrifice Zone

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    In September 2022, 62 percent of Chilean voters rejected the country’s proposed new constitution.1 The defeat took many by surprise—the demands to rewrite the existing charter had been loud and seemingly unanimous. For followers of Chile’s extractive industries, however, the results were less surprising. In fact, they reflected deep and long standing tensions at the heart of the country’s green energy transition.

    At the crux of these tensions is the mining industry. Chile is the largest producer of copper in the world, and the mining industry as a whole employed 289,284 people between July and September 2022. Although mine workers only account for 3.2 percent of the national workforce, jobs are highly concentrated in a few regions.2 Toxic, polluted, and exploitative, it has nevertheless provided employment and growth for surrounding communities.3

    Chile’s miners know that non-renewable resources are unsustainable in the long run, but they also fear that plant closure and industry conversion will leave them worse off. While the constitutional draft offered an impressive set of labor and environmental rights, it neglected to present them with a secure economic future. Among other lessons, the rejection of the constitution reveals the complexities of transitioning away from a neoliberal economy which has left many clinging to jobs that, while dangerous and environmentally harmful, offer financial stability for otherwise forgotten workers. The results of the plebiscite cannot be entirely understood without returning to the history of the mining industry, which is characterized by violence, dispossession, and loss.

    The constitutional debate

    Chile’s current constitutional charter was written during the Pinochet Dictatorship (1973–1990) and approved in a fraudulent referendum in 1980. It is known for its obstacles to reform and for its neoliberal framework, especially regarding social rights. By reducing the role of the state in the economy and society, the constitution encouraged the privatization of social security funds, education, and health care services. Many also consider it illegitimate—a legacy from a government known best for its massive violation of human rights. Indeed, the constitution carries the signature of a regime that, according to official human rights reports, killed or disappeared nearly 3,000 people and imprisoned about 38,000 for political reasons. 

    Though a 2005 reform eliminated some of the most authoritarian clauses, like the appointed senators for life that allowed General Augusto Pinochet and other members of the Military Junta to have a seat in Congress, controversies over the document continued.

    When massive social protests, known as the Estallido Social, took Chile by storm in October 2019, political parties called for a constitutional referendum. Addressing the illegitimacy of the country’s primary legal framework offered an avenue through which  to respond to the social, economic, and political grievances of the largest protests since the return to democracy. 

    In October 2020, more than 78 percent of voters supported rewriting the constitution and electing a constitutional convention. The convention elected in May 2021 included an equal number of men and women, representatives of indigenous nations, and a large number of politically independent representatives. Following a year of deliberations, their final draft was presented to the country on July 4, 2022. 

    The new constitution offered comprehensive social, labor, environmental, and human rights, decentralized power, and established gender parity—addressing many of the demands Chileans had voiced for years. Its labor rights promises included the right to decent work, fair salary, unionization, strike, and collective bargaining. It promised a comprehensive public social security system that could have also covered those performing unpaid domestic and care work. Environmentally, it  was hailed as an “ecological constitution” that “says nature has its own rights, meaning that it can legally be protected.” 

    But in September 2022, nearly two-thirds of voters rejected the proposal. There had been some indication of opposition throughout the process: controversies had tainted the work of the convention, the return of compulsory voting brought five million new people (a 40 percent increase) to the polls, and it had been accused of carrying unrealistic ambitions. In some cases, it was also a vote of protest against President Boric, who assumed power in March 2022, and in favor of concrete measures to overcome the economic recession and high inflation rate. 

    From the perspective of the country’s workers, a crucial factor was that despite its impressive set of rights, the constitution did not offer concrete solutions to meet people’s everyday needs. The overwhelming opposition of workers in Chile’s extractive industries perhaps most clearly embodies these contradictions. In Calama, the country’s mining capital, 70.64 percent of residents rejected the draft—despite living in a region where pollution has had long-term consequences on people’s health. Workers in this region recognized a grounding of good principles, but saw few tangible changes proposed. Though the draft constitution offered to bury Pinochet’s neoliberal legacy, it is also true —as Javier Auyero has argued for the case of Argentina—that people had learned how to maneuver within the existing political-economic and bureaucratic system.4 In a time of economic crisis, many chose certainty over vague radical change. 

    A history of failed closures

    Like refineries and plants, mines and their associated plants inevitably shut down because of increasing costs, depletion, accidents, or environmental issues. Throughout Chile’s history, failed shutdowns and company restructurings have left communities strangled. Each shutdown has left behind a trail of poverty, unemployment, and toxic waste. As a result, communities feel abandoned by the very governments that lined their pockets with the sacrifices of miners’ and their families. 

    During the first half of the twentieth century, the long nitrate crisis expelled thousands of workers and their families, creating a landscape of ghost towns throughout the Atacama Desert. When chemical fertilizers displaced nitrate, employers reduced production and laid off the workforce. Unable to find work in the area, most workers and their families were forced to migrate. Later, the economic crisis of the 1980s closed down large factories, many of which never reopened—or when they did, their labor conditions were far worse than before. Alejandra Brito Peña has argued that these closures were particularly traumatic because they took place under a violent military dictatorship. In the 1980s, the social costs of the closures were almost always passed to local communities; the government offered little or no support for avoiding economic decline. Locals remember the shutdowns as a form of harsh dispossession, and these memories continue to color their political decisions.5

    Coal mining communities have paid particularly dearly for the economic transition of the 1990s. When the Empresa Nacional del Carbón (National Coal Company, or ENACAR) announced the end of mining in the southern coastal city of Lota in 1997, it was far from a surprise. Lota symbolized a long history of miners’ labor struggles. For generations, miners there had extracted coal from below the ocean floor, a dangerous job that claimed thousands of lives. But by the 1960s, low productivity, low ore quality, and high costs rendered the company insolvent. This worsened with declining investment and modernization during the 1970–1980s. With the return of democracy in 1990, ENACAR was deemed too expensive and inefficient to survive. 

    In preparation for closure, ENACAR designed a transition program which included early retirement, incentives for the re-hiring of coal miners by local companies, and workforce retraining programs. But in practice, these commitments could not generate good and stable jobs. Chile’s neoliberal prosperity was based on precarious employment and the privatization of social rights, leaving workers and their families without a safety net to protect them from unemployment, old age, sickness, or disability. Twenty-five years later, Lota is one of the poorest communities in the region. Its history demonstrates that shutting down a mine or industrial complex without a solid commitment to creating good-quality jobs only traps communities into cycles of poverty.6 

    The sacrifice zone

    The memory of these experiences is compounded by developments in Chile’s mining industry in the months before the constitutional vote. In June 2022 CODELCO, Chile’s state-owned mining company and one of the largest copper producers in the world, announced the closure of a smelter in Ventanas, an industrial complex located on the central coast of Chile. While the closure was justified on environmental grounds, citing the plant’s high sulfur dioxide (SO₂) emissions, it was also guided by rising and unsustainable maintenance costs.  

    The Ventanas industrial complex dates back to the early 1960s, when President Jorge Alessandri inaugurated a copper smelter, refinery, and thermoelectric plant. Built to support the needs of small and medium-size mines, they were considered the country’s most outstanding achievements. The complex expanded in the following decades, attracting both public and private capital. In 2005, due to financial problems, ENAMI sold the smelter and refinery to CODELCO. 

    Today, there are sixteen plants in a stretch of three miles around the bay, including an oil refinery and three thermoelectric stations. But though the complex once symbolized industrial modernity and state capitalism, today, it is known for environmental degradation and labor conflicts. 

    Though the plants have always been polluters, activists began to mobilize against their environmental impacts after the return to democracy in the early 1990s. Their attention—and, consequently, that of the public—has focused on the SO₂ emissions of the smelter and the coal-fired thermoelectric plants, which caused high rates of cancers and other diseases among the local population. Thirty years of environmental laws, inspections, legal conflicts, and resolutions have ensued.

    In 1993, ENAMI approved a decontamination plan to reduce SO₂ emissions, limit the amount of arsenic, and commit to submitting monthly reports. The resolution failed: environmental authorities declared the area a “saturated zone” the following year, signaling that pollution had exceeded all acceptable levels.7 These problems continued. In 2011, the emissions caused a severe case of poisoning in a nearby elementary school, La Greda. Children began fainting in class, with some experiencing long-term health problems. Greenpeace called it the “Chilean Chernobyl.” 

    The disastrous episode transformed Chile’s language for environmental disasters and their impact on low-income communities. According to Luis Espinoza Almonacid, after La Greda, environmental activists and NGOs started describing Quinteros Bay as a “sacrifice zone,” a term originally coined in the United States in the 1970s to describe areas that are low-income and disposable.8 Meanwhile, the smelter and refinery workers who died of cancers and other complications became known as “green men” because of the impact of chemicals on their bodies. By now, people simply live what Manuel Tironi and Israel Rodríguez-Giralt call “toxic lives”: “a chronic, silent and creeping conditioning that is inseparable from life’s ordinariness.”9

    After the announcement of the plans to close the smelter, CODELCO workers staged a wildcat strike. They defended the industry and their jobs, arguing that CODELCO should invest in making the plants sustainable. Clinging to the economic nationalism that has influenced their union history, they also supported the role of the public company, arguing that the closure would diminish the state’s role in the mining sector. The strike lasted forty-eight hours and while it did not mobilize all company workers, it sent a strong message to the nation and sparked fears about the economic costs of shutting down the country’s most important industry.

    Few Chileans outside of the COLDECO workforce supported the strike, and the media quickly labeled it a selfish walkout to protect high-paid jobs without consideration for the health of community members. In ongoing negotiations between the company and labor unions leading up to the referendum, the government has reassured workers that they would not be abandoned. But in a country with a history of job precarity, weak labor protections, and rising informality, the workers know that they should be skeptical of these promises.

    Extractive communities at the crossroads

    In Calama, Lota, and Ventanas, as in other mining communities, workers voted against the constitution. While the new labor and environmental protections might have benefitted them, they were skeptical. In the context of neoliberal precarity, mining offers better, although dangerous, income than other work. As Marco Gandarillas writes in the case of Bolivia, workers are placed in the impossible position of either defending their jobs or protecting their communities from environmental damage.10 In this case of Chile, these concerns build on a history of sudden and traumatic closures which have periodically left communities devastated in their wake. 

    There is no question that a transition to a low-carbon economy is urgently needed to confront climate change, and that transition will require closing and restructuring many industries. If this transition is to be truly just and democratic, however, it must account for the historical memories and experiences of easily forgotten workers, who have been repeatedly burdened by radical economic shifts. For Chile’s extractive workers, job creation ought to be at the center of the agenda.11

  6. A New Non-Alignment

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    This essay first appeared in GREEN, a journal from Groupe d’études géopolitiques.

    In March of this year, as Russia’s war in Ukraine intensified, China’s Foreign Minister Wang Yi made a trip to New Delhi to speak with his Indian counterpart S. Jaishankar. “If China and India spoke with one voice, the whole world would listen,” Wang argued. “If China and India joined hands, the whole world would pay attention.” The geopolitical scales soon started to tilt India’s way. 

    By April, European Commission President Ursula von der Leyen had made her first trip to Delhi, where she laid the groundwork for several weeks of frenetic EU-India dealmaking for a sweeping agenda ranging from defense to green manufacturing.

    The following month, in a whirlwind three-day tour of Germany, Denmark and France, Prime Minister Narendra Modi won concessions that Indian policymakers have coveted for well over two decades, ranging green-energy investments, tech transfers, and weapons deals, putting flesh on the bones of a moribund EU-India strategic partnership.

    In Berlin, Chancellor Olaf Scholz announced a €10 billion green partnership to help India achieve its 2030 climate targets and high-tech transfers. The next day in Copenhagen, Nordic countries signed wind and solar deals, alongside green shipping and green cities investments. In Paris, Macron signed deals to invest in India’s green hydrogen hubs as well as increase sales of French military aircraft and ships; for its part, Électricité de France confirmed a long-pending deal to build six EPR-1650 nuclear power reactors in Jaitapur. This followed India’s momentous $42 billion investment deal with Japan for electric vehicles (EVs), green hydrogen/ammonia, and heavy industry transition.

    The timing of these rapid concessions is no accident. The divorce of China, Russia, and the West is providing Modi with a golden opportunity to negotiate a new geopolitical order. As the world splits into new Cold War blocs—which look strikingly similar to the old Cold War blocs—the old Indian grand strategy of non-alignment is reemerging. And this time, the rise of China assures that the new counter-hegemonic bloc will enjoy considerably greater resources than the former communist powers ever did.

    That emboldened confederation stretches beyond the subcontinent. India’s last thirty years of catchup growth were achieved in an era of US global primacy. Along with other developing nations who have interests independent of the US, today, a much richer India has the leverage to challenge the coercive underbelly of American hegemony. Brazil and Indonesia, too, are taking advantage of their new pull. Neither the United States nor Europe should underestimate postcolonial elites in their renewed efforts to chart an independent course.

    Friction with the West is assured. But diplomats in the developing world are prepared to pay to avoid a costly and risky confrontation with the Sino-Russian axis. Developing countries’ answer to the West’s question, “Do you want to contain China with us?” is probably “Yes.” But the answer to the question, “Do you want to contain China and Russia with us?” is probably “No.”

    Since 9/11, the US Department of the Treasury, National Security Agency, and Department of Commerce have developed a Panopticon over the key networks of globalization. The Treasury’s Office of Foreign Asset Control and the SWIFT payments system surveilled financial channels; Edward Snowden’s Silicon Valley surveillance internet provided a view into the flow of information; and the export control list of technologies gave it a map of supply chains. Key choke points were located and operated in the advanced industrialized states of the G7. Meanwhile, the US became more willing to weaponize the dollar system against troublemakers. The signal to developing countries was clear: if threatened, the US will exert its control over the technologies underpinning economic growth and military superiority.

    The G7’s command of key technology remains the source of its hard power, as demonstrated by the design of its economic-warfare sanctions against Russia following its latest invasion of Ukraine. Sanctioning Russia’s central bank assets and cutting off access to the SWIFT system signaled financial war. Then, a technological iron curtain fell, blocking high-tech exports to Russia’s economy as well as critical airplane parts, while the G7 sought to block the supply of silicon chips (a key component of military hardware) from Korea and Taiwan. In October, the US escalated its containment of China by export control restrictions on chips.

    Countries like China, India, Indonesia, Brazil, South Africa, Mexico, Saudi Arabia, and the United Arab Emirates have refused to sacrifice their national interests to punish Russia. Most importantly, they believe their bargaining power in the new Cold War will result in sweeter trade, technology, and weapons deals from the West. These eight countries alone will account for three-fourths of the world’s population and 60 percent of its economy by 2030. They have aspirations for regional dominance and believe non-alignment better serves their interests.

    Little wonder, then, that these countries are adopting a stance of non-alignment to secure the same key technologies—fighter jets, green technology, chips, submarines, nuclear, advanced pharmaceuticals, 5G mobile networks—that could power their catch-up growth. The map of countries that remained neutral on Russia sanctions is no bleeding-heart protest for global justice, but a hard-nosed security play. Before signing up to the West’s new financial-technological-military regime, these countries intend to extract maximum concessions. They are also betting that the West will tolerate their foot-dragging on Russian sanctions, and refrain from imposing secondary sanctions (sanctions for breaking sanctions) on them. Threats to exit, as any bargainer knows, confer power.

    What exactly do the countries flirting with a new non-alignment want?

    1. Core technologies to power future growth;

    2. Advanced military hardware for enhanced security;

    3. The upper hand in trade negotiations with Europe, the US, and the new Russia-China bloc;

    4. Essential commodities like food, energy, metals and fertilizers from the new Russian-Chinese bloc;

    5. Better terms to  restructure their debt to Western and Chinese creditors during a punishing global dollar debt crisis that threatens their sovereignty.

    The Non-Aligned Movement (independence from colonialism and not formally aligned with or against any major power bloc, either East or West) started during the Cold War at the 1955 Bandung conference in Indonesia with 29 countries. It was institutionalized in 1961, survived the bipolar period, and fell into irrelevance after 1991. NAM currently has 120 members. Three large countries—China, Brazil, and Mexico— are observers. Source: Non-Aligned Movement Disarmament Database

    Reliance, the Indian conglomerate owned by billionaire and Modi-backer Mukesh Ambani, encapsulates developing countries’ relationship with the G7. Ambani’s Jamnagar refinery makes billions importing Russian crude oil and exporting diesel and gasoline to the West. Despite its flouting of Western sanctions, it continues to receive green technology transfers from the West. It has invested more than $60 billion of its own cash and $10 billion in partnerships and acquisitions of electrolyzers to manufacture hydrogen (from a Danish firm), photovoltaic wafers (from a German firm), solar panels (from a Norwegian firm), grid-scale batteries (from a US firm), and iron-phosphate batteries (from a Dutch firm).

    India’s management of these foreign partnerships will depend on Dubai. UAE President Mohammad bin Zayed has positioned the Gulf Kingdom as a Club Med for oligarchs and merchant banks to skirt Western sanctions. Gulf petrostates are set to gain an additional $1.3 trillion in petro (dollar) exports over the next four years. Dubai lets non-aligned countries bypass sanctions, using commodities payments settled in yuan, rupees, and rubles to bypass dollars. Biden’s Persian Gulf policy is adapting, with talk of security guarantees for the UAE and a new partnership with the US for a $100 billion clean energy financing deal for developing countries. Gulf sovereign wealth funds are meanwhile investing in the energy transition across Eurasia. It’s the old Indian-Arab-European sugar, spice, cotton trade route back with a bang.

    Under President Joko Widodo, Indonesia, too, is making its move by taking control of its abundant supply of nickel and copper—essential for the energy transition—and incentivizing investment in processing facilities. If the dream of becoming an electrostate is new, the tools are old. Indonesia is copying the developmentalist state successes of the East Asian Tigers as well as the 1970s nationalization drives of the OPEC countries. To howls of outrage by the European Commission at the World Trade Organization, Jokowi banned exports of nickel, forced international companies to refine and process it domestically, and sought technology transfer to state-owned enterprises.

    Indonesia has the largest nickel reserves in the world, with a majority controlled by its state-owned mining company, MIND ID. After Jokowi banned nickel exports, Chinese companies agreed to set up joint ventures in Indonesia along with transfer of critical high pressure acid leach (HPAL) technology that is required to make battery-grade nickel. While Germany’s Volkswagen, Brazil’s Vale, and the U.S.’s Ford and Tesla initially sought to secure unprocessed nickel from the country, Indonesia insisted on grabbing more of the value chain by creating an EV-producing national champion, Indonesia Battery Corporation, which has struck partnerships with China’s CATL and South Korea’s LG to obtain critical HPAL technology for battery-grade nickel.

    Jokowi’s next targets for the “ban-exports-and-nationalize” treatment are tin (Indonesia is the world’s second largest producer and the metal is used as solder to make electrical connections), aluminium (Indonesia is world’s fifth largest producer and the metal is used in electricity and cars) and copper (used in, well, everything electric).

    Such policy independence nonetheless remains limited in the face of American sanctions. After the US threatened any client for Russian weapons with economic warfare, Indonesia canceled its planned purchase of Russia’s Sukhoi-35 fighter jets, despite Russian offers of a dollar bypass palm-oil-for-fighter-jets scheme. Instead, Indonesia undertook a major escalation in defense spending to buy thirty-six US F-15s and forty-two Rafales from France, along with two of France’s Scorpene submarines  (the latter an emollient after France lost out on its sale of diesel subs to Australia) at a total cost of $22 billion. When Russia shipped two S-400 air defense missile systems to India in 2021, it prompted a furious backlash from the US and threats to sanction India for the deal. Calls for constructive, non-coercive sanctions, remain unheeded.

    Brazil’s president-elect Lula backed by the left-wing Workers’ Party (PT), labor unions, community, racial and gender rights groups sustains a broad political commitment to sustainability and multilateralism.

    Perhaps most surprisingly, given his regime’s proximity with the US, outgoing Brazilian President Jair Bolsonaro chose neutrality in the war. The material stakes make this choice seem obvious—Brazil’s soy, corn, sugar, and meat exports are heavily dependent on Russian fertilizers, and so Bolsonaro has had an enormous stake in preserving relations. Moreover, Brazil’s trade surplus with China is bigger than all its exports to the US  But the ideological current runs deeper.

    Under Luiz Inácio Lula da Silva, Brazil deepened relations not only with the BRICS and other Pink Tide governments, but also with the US. In 2011, the foreign minister boasted that Brazil had more embassies in Africa than Britain did. That willingness to make friends in both the Pacific and North Atlantic has given it greater room to maneuver, as when it broke HIV/AIDS drug patents in favor of Indian generics.

    Bolsonaro’s free-market faction broke with that multilateralist tendency, siding against India, South Africa, and China when that bloc demanded Covid-19 vaccines free of intellectual property (IP) limitations at the World Trade Organization. It also joined the G7 on agricultural free trade policy, and sat out IP fights. Yet the Brazilian right’s best efforts to quash protectionism were not enough to overcome the country’s long aversion to G7 coordinated schemes; Brazil still chose neutrality on Russian sanctions. Elites in Brasília would rather keep their options open and their commitments light.

    Green industrial growth compels some hard choices. Looking ahead, Brazil will need to prioritize either domestic industrialists or external allies as it weighs whether to develop flex-fuel cars fed by homegrown sugarcane ethanol or batteries sourced from China, Indonesia, and the nearby lithium triangle. In his victory speech, flanked by trade unionists and landless peasants, Lula pledged to pursue strategic non-alignment: “We will not accept a new Cold War between the United States and China. We will have relations with everyone.” Brazil may defer choosing between North and South, but the choice between an inward-looking Brazil or an outward-facing one looks inevitable.

    There was a special irony to Brazil’s right-wing capture. Under Bolsonaro, the country was perhaps the most cooperative with the G7-led order of any BRICS country. But Lula represents the developing world’s best shot at leading a global non-alignment movement. Whereas the old non-aligned movement was anchored by moral imperatives—decolonization, anti-racism, nuclear disarmament—this fledgling version lacks a positive social and ethical program. Instead, it stems from the cold commercial and security logic of development. It will be up to that former unionist metalworker to forge a new coalition based on shared values.

    Developing countries will use this decade’s violently shifting geoeconomic conditions to build on old growth models, including industrial policy and developmental-state capitalism. Expect states like India and Indonesia to keep imposing conditions on their increasingly coveted cooperation and access to growing consumer markets on hard infrastructure deals.

    If this is the general trend, there will be enormous variations in strategy. Brazil’s program of development through social policy, including the signature Bolsa Familia cash grants, may be fully realized with Lula’s return to power. Indonesia and India—who hold outgoing and incoming presidency of the G20—meanwhile, have favored policies centered on the buildout of electricity, roads, and ports, which can disregard human rights and bias deals toward powerful incumbents. In the extreme version, consider the Gujarat model that has formed the basis of Modi’s aggressive electoral campaigns.

    The new non-aligned countries play the G7 powers off each other. Most exposed to this shifting terrain of economic and security relationships are Germany, Korea, and Japan whose industrial firms fear loss of their export markets. Thus far Germany is distancing itself from the decouplers in Washington. In his recent visit to China, Chancellor Scholz, flanked by CEOs of BASF and Volkswagen, said “New centers of power are emerging in a multipolar world, and we aim to establish and expand partnerships with all of them.”

    Even as non-aligned countries negotiate within the new sanctions regime and find ways to use it to their advantage, we should not lose sight of the devastating toll of G7 sanctions, a blunt instrument that has torn up supply chains and created inflationary pressures. When emerging market elites can parley these conditions to their advantage, it is impressive. But even the most creative trade deals struck under terms set by the G7 are insufficient buffers against food and energy price volatility, unleashed by deregulated commodity markets run out of London and Chicago. Climate chaos on every continent, meanwhile, compounds these tensions, devastating the already threadbare lives of many. All the more reason, then, for the G7 to take a leaf out of the BRICS’ playbook and coordinate investment in long-term sustainable infrastructure.

  7. Domestic Politics & Planetary Change

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    The economic fallout of the pandemic hit Latin America harder than almost anywhere else in the world, kicking 12 million people out of the middle class in a single year. In a string of recent elections—Chile, Bolivia, Colombia, Ecuador—voters have punished incumbent politicians, and the winner has been Latin America’s left. The question facing the continent is whether the new Pink Tide can become a green one.  

    In his victory speech on Sunday, flanked by trade unionists and landless peasants, Brazilian President-elect Luiz Inácio Lula da Silva pledged to pursue strategic non-alignment. “We will not accept a new Cold War between the United States and China. We will have relations with everyone.” China is already Brazil’s largest trading partner and Brazil chose not to join the G7 sanctions on Russia, citing its agricultural sector’s dependence on Russian fertilizers. South-South cooperation may be a big theme of his presidency; Lula’s speech mentioned South American and Caribbean alliances, BRICS, and collaboration with African countries.

    We will resume the monitoring and surveillance of the Amazon, and combat any and all illegal activities, whether they be mining, logging, or improper cattle ranching. – Lula, victory speech.

    When Lula was last in power, soy and beef moratoriums reduced Brazil’s deforestation of the Amazon by 80% between 2004 and 2012, even as Brazilian agricultural production boomed. Norway paid over a billion dollars to Brazil for avoided deforestation. Brazilian law enforcement agencies used Indian and Chinese satellites to monitor deforestation from space, while police and prosecutors enforced it on the ground. 

    Bolsonaro’s parliamentary coalition of rural agribusiness interests—the so-called beef, bible, and bullets coalition—blew up that deal. Without Lula-era enforcement of environmental laws, criminal gangs and agribusiness companies pushed the soy and beef frontier further into the Amazon rainforest, driving a massive spike in deforestation. The most egregious culprit was the meatpacking company JBS, which runs the world’s largest slaughterhouses and processes a quarter of the planet’s beef, and whose emissions from deforestation are larger than all of Italy’s.

    A Lula government that enforces the decades-old Forest Code could see Amazon deforestation dramatically reduced, and some restoration in parts of the south and south-east.

    Illustration from Carbon Brief. Deforestation (red) and restoration (green) “baseline” (left, minimal to no enforcement) and “Forest Code” (right, with enforcement) scenarios between 2021 and 2050. Source: University of Oxford.

    Regions that are worse off in the right-hand map above include the Cerrado grasslands in eastern Brazil, which are less carbon-rich than the Amazon but nevertheless serve as major stores of carbon dioxide. Lula and Dilma Rousseff’s earlier governments also protected the country’s northern Amazon regions, turning a blind eye to forest clearing in other regions. 

    Just as Russia’s invasion of Ukraine spurred more fossil fuel extraction, the Trump administration’s tariff war against China accelerated the pace of clearing land for soybean crops in Brazil, as China stopped buying US soy. Soybeans are Brazil’s biggest export earner. Beef, meanwhile, drives most Brazilian land clearing, and here, pressure from outside Brazil matters less than national politics, since 80% of the beef produced is consumed domestically.

    Who will be Lula’s Manchin?

    Brazil has long seen itself as the southern hemisphere twin of the United States. In the last few decades, Brazilian agriculture has expanded furiously, plowing the Cerrado with a capital intensity rivaling the earlier plundering of the American prairies. That demolition produced vast soy and corn latifundia that has put Brazil in direct competition with the Midwestern corn belts and the soy towns along the Mississippi. As in the US, Brazilian farmland expansion has gone hand in hand with state support, including a web of rail, roads, and waterways to maximize agricultural extraction for internal and export markets.

    That physical infrastructure is kept running by agribusiness bosses and their cronies in parliament, who will stick around through Lula’s next term. We’ve just seen this show play out in the United States. Biden’s climate bills were critically weakened in negotiations with Senator Joe Manchin, representing the voice of oil and gas companies grown fat on a fracking boom. Likewise, Lula will have to make bruising compromises with the JBS-commandeered rural bloc of politicians seeking subsidies for agro-industry. The Workers’ Party (PT) may control the presidency, but Bolsonarists hold the largest bloc in Congress with 99 seats and 14 of 27 states governorships, while the center-right parties form the largest Senate bloc. That legislative impasse means Lula will have to pick battles from his ambitious agenda of social housing, greening agro-industry, and transitioning Petrobras, the national oil company. 

    The new Lula government will have to contend with homelessness, unemployment, and more than a quarter of the population living with hunger. But backed by housing movements, Lula aims to expand social housing and public-transit-oriented green urban development. Any success would serve as a model for other middle income democracies.

    Crude oil is also a significant source of Brazil’s export income, not far behind soybeans. In a late-March interview with Time, Lula dismissed talk of ending national oil extraction. But a Lula government will exert more control over Petrobras, seeking more domestic refining capacity and a vision like that of European oil majors who are declaring themselves “integrated energy companies” that make renewable electricity.


    Brazil’s election result and Lula’s attendance will boost the mood at the UN annual climate conference, which begins its 27th meeting on Sunday in Egypt. But the pull of Brazil’s big agriculture and oil underlines how difficult the meeting will be. 

    Standard agenda items relating to money won’t be easily smoothed over by rallying around familiar long-term targets and sectoral pledges. The global debt/currency crisis has prompted tougher questions around the broader financial architecture. Participants from the global South may no longer be content to quarrel over commitments within the confines of climate finance. Many developing countries are experiencing a dire mix of debt distress, high commodity import prices, climate-driven disasters, and scarce access to hard currency. 

    Our first newsletter explored some of the proposals to fix the widening north-south disparity in financial architecture using mechanisms, such as sovereign debt reform and IMF Special Drawing Rights. These matters are now, at last, reaching beyond the world of the Bretton Woods institutions and into UN climate diplomacy. 

    A thread linking the two together is “Loss and Damage,” a kind of sovereign compensation for climate-driven harms. L&D, which is distinct from climate “adaptation” because it denotes harms that can’t be managed or avoided, finally attained a place in the formal COP agenda last year, but with little promise of funds. 

    Loss and Damage will be harder to downplay now as Pakistan faces an historic crisis. Monsoon rains flooded over a third of the country’s land mass, in the wake of severe heatwaves and on top of a Covid-19 exacerbated debt crisis. Sherry Rehman, climate change minister, has told international and domestic media that wealthier countries with greater responsibility for planet-heating emissions need to pay up. “The bargain between the global North and global South is not working and it needs to be fixed for the global South to survive the oncoming train of climate change,” she told Dawn, adding that official climate finance takes two to three years to access. 

    The IMF will loan Pakistan $1.17bn of a $6bn facility agreed in 2019. But the total cost of the flooding is estimated at $15 to $30 billion. While the loan may help with immediate crisis-fighting efforts in Pakistan, it could also be just enough aid to create the appearance of acting on L&D pre-COP.

    The moral case for loss and damage compensation is plain: By and large, the greatest temperature increases and most punishing storms will hit poor countries clustered near the equator that have contributed little to climate change. Yet proposals for rich countries to pay up have so far proved a political cul-de-sac.

    The US in particular is wary of anything that might look like reparations or might identify vast liabilities. “You tell me the government in the world that has trillions of dollars, ’cause that’s what it costs,” John Kerry said last month. 

    Domestic politics constrains the US, which is only slowly edging towards enabling the World Bank to lend more, even while Fed rate rises heap more pain onto low-income countries.

    To the Conference of the Parties, global South countries are bringing demands for loss and damage, the Bridgetown Agenda, and a possible debt strike by the climate-vulnerable. Can Lula build global South solidarity? How will the Biden administration approach Brazil’s moves? Instead of fearing autonomy from new Pink Tide governments, Biden should take the easy win of supporting Lula to achieve shared goals of planetary stability.

  8. Town & City

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    Earlier this month, Brazilians went to the polls in an election billed as the most momentous since democratization in 1985. Far-right president Jair Bolsonaro faced off against former two-term president Luiz Inácio “Lula” da Silva. Though Lula did win the first-round election by more than 5 percentage points, or 6 million votes, it was not enough to clear the 50 percent threshold needed for first-round victory. The opponents will face a polarizing run-off on October 30. 

    In Brazil, the national and state-level executives are elected by direct proportional representation for four-year terms. This is also the case with the Senate, comprising eighty-one seats, each serving eight-year terms. The lower-house national legislature, the Chamber of Deputies (comprising 513 seats, each serving four-year terms) is elected via open list proportional representation through state-based lists, with a 2 percent threshold and a rather complicated alliance system between parties. As a result, there has systematically been a disjuncture between the executive and the legislative in the country, and presidents need to cobble together shifting alliances to try and form the temporary majorities they need to legislate. At best this has led to weak governments, and at its worst it has been the breeding ground for semi-legal practices and various corruption scandals over the years.

    The results from Brazil’s first round show a sharp turn to the right in the legislature—for which there are no run-offs—as well as in gubernatorial races. In both upper and lower houses, the number of right-wing members is set to reach a historic high. In the Senate, Bolsonaro’s Liberal Party won eight of the twenty-seven Senate seats up for grabs, making it the largest party in the chamber. Other right-wing parties also made substantial gains, such as União Brasil which took five more seats, bringing its total to eleven. Meanwhile, Lula’s Workers’ Party (PT) made only modest inroads, gaining two seats in the Senate to take its total to nine. Other left-wing parties failed to increase their representation. 

    A similar pattern can be seen in the lower house. There, too, the right made gains and the leadership will remain in the hands of the Centrão, the amorphous, right-leaning group of Deputies best known for their skill in pork-barrel politics and for selling, at eye-gouging prices, their support to the government of the day. Nevertheless, there were some developments that went against the grain: in particular, there was a significant increase (from seventy-seven to ninety-one) in the number of women deputies elected, and a small rise in the number of self-declared black and brown deputies, from 124 to 135, even if they continue to be woefully under-represented. 

    There are two main implications from these results. First, whoever is elected in the run-off will have his work cut out to legislate—all the more so for a Lula presidency. One can expect more of the horse-trading politics that have characterized executive-legislative relations in Brazil for decades. Second, while the executive remains up for grabs, the results demonstrate the strength of the new right. If Bolsonaro’s sweeping victory in 2018 could in part be read as a widespread rejection of established politics, the same cannot be said for 2022. In a deeply polarized country, this novel right-wing politics—centered around a punitive approach to public security, conservative values, and an economic agenda that is unclear beyond its unflinching support to agribusiness—is now a consolidated force, which encompasses but exceeds Bolsonaro himself. Understanding this force and its supporters is perhaps the key challenge over the medium term. 

    The standard map

    A standard narrative about the Brazilian constituency in recent years is that the poorer north and northeast tends to vote for the Workers’ Party, while the wealthier south(east) throws its support behind the right. Standard visual representations of the Brazilian vote—spanning the first two rounds of 2018, plus the first round of 2022—seem to confirm this reading. The north and northeast of the country are depicted as broad swathes of red, albeit with some exceptions—most prominently the blue colored state of Roraima in the far north. The south, by contrast, is shown to be overwhelmingly colored blue, representing Bolsonaro’s sweeping victory there.

    Figure 1: Map of presidential election results in Brazil, 2018 (first and second round) and 2022 
    Author’s maps based on data from TSE.

    This north-south divide has socio-economic roots, as the north has historically tended to be poorer and less developed. Whilst there are complex reasons for this pattern of uneven geographic development, it can be traced to political and economic dynamics dating back to the nineteenth century. The coffee economy, which kicked-off in the early nineteenth century and, later, industrialization in the twentieth century, were concentrated in the southeast of the country, especially in Brazil’s most populous city, São Paulo. Meanwhile, the state apparatus was housed in Rio de Janeiro, the national capital until 1960. These two mega cities drew internal migrants from other regions of the country and concentrated resources, political power, and economic growth in the southeast. 

    Nevertheless, as André Singer has shown, the PT’s popularity in the north and northeast is a relatively recent occurrence. Before it came to power in 2002, the party had drawn its main support from better-educated, higher-income voters in the big cities, largely in the south; after 2006 this changed, and the PT became most popular among lower-income groups in smaller municipalities.1 This was in large part thanks to the PT’s redistributive policies which lifted the minimum wage and introduced conditional cash transfers like the famous Bolsa Familia. The PT’s policies were squarely aimed at the lowest (and the very highest) end of the income spectrum, rather than expanding the high-paid labor market in such a way that would have attracted the middle class, and so the shift was consolidated. Ongoing corruption scandals—by no means unique to the Workers’ Party, but nevertheless a recurring feature of its administrations—further corroded middle-class support. The PT’s expansion of finance and higher education to previously excluded groups also brought the latter closer to the party—and especially to the figure of Lula, who himself had been a migrant from the northeast to São Paulo. As redistributive and growth-enhancing policies had a greater impact in the poorer, northern parts of the country, a regional pattern gradually consolidated itself from 2006 onwards and has, so far, remained in place.2

    If the northeast of the country has been loyal to Lula and the Workers’ Party since then, the north has been a more complicated case since Bolsonaro came to power. The President and his government have ramped up deforestation and expanded agribusiness across the Amazon—which covers most of Brazil’s northwest—and elsewhere. It’s a policy that has attracted global consternation but loyal support among the logging, mining, and farming industries. Deforestation in the Amazon was reduced by roughly two thirds during PT rule, but has since then almost doubled again to cover 13,000 square kilometers in 2021—and continues to accelerate.3 The effects of Bolsonaro’s policies have been fatal, but the PT’s policies towards the region are themselves not without controversy. This is perhaps best encapsulated by the example of PT plans to build the Belo Monte dam in the state of Pará, which was bitterly resisted by affected indigenous and riverine communities. Electorally, this means the state has shifted from supporting the PT in 2010 and 2014 to supporting Bolsonaro in 2018, and it is currently split across its municipalities. As such, the Amazon and the wider north are very much at the crossroads of different pressures.

    New terrain

    If these standard maps of Brazil reveal a major cleft between north and south, they nonetheless skip over much of the texture and detail of Brazil’s political geography. Most significantly, their mode of representation ignores the differences that occur within regions and within states, as well as distorting population densities. Brazil’s election is won based on the percentage of the total vote rather than state-by-state victories, and analysis that distinguishes between larger and smaller conurbations is necessary. In Brazil, fourteen cities account for 20 percent of the vote—but just one percent of the territory. Similarly, 50 percent of voters are concentrated in just 8 percent of the territory. Looking at particular states, São Paulo accounts for about 3 percent of the country’s area, but 22 percent of the votes. The northern state of Amazonas, by contrast, spreads over 18 percent of the country’s area but yields just 2 percent of the vote.

    The cartograms below give a richer picture. Figure 2 maps the same two rounds of the 2018 election, plus the first round from 2022. It reveals a more accurate representation of the electoral map in so far as the mapped area is proportional to votes cast in each election.

    Figure 2: Electoral Brazil, cartogram of total votes for presidential candidates in Brazil, 2018 (first and second round) and 2022
    Author’s maps based on data from TSE.
    Notes: the area of states and municipalities is proportional to their share of total valid votes, i.e. equal areas represent the same number of total votes cast for all presidential candidates regardless of their hue. The color scheme is based on the percentage vote gap between the PT and Bolsonaro (positive/red if the PT is ahead).

    The main cities in each state are now clearly visible, with São Paulo in particular standing out. In 2022, it is the large, light pink area in the southeast—marginally won by the Workers’ Party—with a cordon of deeper red municipalities amidst a blueish sea. 

    What these finer-grained cartograms highlight is that there are significant intrastate divisions, both in the north and the south. The bellwether state of Minas Gerais is a clear example of this, reflecting its geographical position between the generally pro-Bolsonaro south and center-west and the pro-PT northeast. Capital cities in the north and northeast, made visible through their larger size in the cartograms, also stand out for often having a different color—and hence voting pattern—to the rest of their states. This calls attention to the political geography of the country’s towns and cities.

    Unlike in much of the global North in recent years, however, this is not simply a story of the biggest cities—the beneficiaries of globalization and with access to high-quality public services—voting for progressive candidates, and towns—often left behind and “deindustrialized”—backing the right. Brazil bucks this trend. Most large cities supported Bolsonaro in 2018, including a few in the PT-leaning northeast, both in the first and second rounds. Results for the first round this year were more mixed, and as Laura Carvalho and Pedro Abramovay have indicated, the PT did have a better showing in large cities this time.4 Nevertheless, with Bolsonaro holding on to most large cities of the south and Lula holding those of the north, the picture remains complicated. “Bolsonarismo,” then, is not a preserve of the hinterlands, nor is “Petismo” a metropolitan trend. Rather, large cities in Brazil are sites of polarization and tight margins, whilst Bolsonarismo is predominantly a medium-sized city phenomenon and Petismo is strongest in small towns. This plays out across the country, as the  following cartograms show.

    Reading the first round

    The Workers’ Party gained ground in the first-round election, albeit not to the extent that the polls anticipated. It has advanced in virtually all of the south, southeast and center-west, often to the tune of 30 percentage points (as in the city of São Paulo). At the same time, Bolsonaro has made substantial inroads in segments of the north and northeast. This is highlighted in Figure 3, which, comparing the first round of 2022 to the second round of 2018, shows changes in the vote gap.

    Figure 3: How 2022 is different: cartogram of changes to the vote gap between the PT and Bolsonaro, 2022 compared to second round of 2018
    Author’s maps based on data from TSE.
    Notes: the area is the same as in Figure 2. The color scheme is based on the variation of the percentage vote gap: it is positive/red if the PT has increased its lead or reduced its disadvantage, regardless of the absolute gap in either period.

    The broad pattern that emerges is that the PT has gained ground where it was weakest and ceded terrain where it was strongest. Regionally, of the 10 million additional votes the PT received (compared to the second round of 2018), 6 million came from the southeast and about 2 million from the south and center-west combined. As a result, the party has narrowed its losing gaps by between 18 and 26 percentage points in regions it is currently losing, and ceded some ground in the northeast, where it is winning.

    In general, the PT advanced in cities, particularly large ones, and stalled in towns. Across the country, Lula’s party moved ahead 3 percentage points in small towns, where it is currently at its strongest and leads by 24 points. It has trimmed its losses by 19 points in medium cities, where it holds its worst results, trailing by 9 points. The swing was even stronger in large cities, though, where the party went from a negative gap of 21 points in 2018 to a slightly positive lead of 2 points in the latest round. This pattern holds across the country. The PT’s losses (or rather the narrowing of their lead) have been concentrated almost exclusively in towns in the north and northeast. In the other three regions, the party has made similar inroads in large cities, hovering around a gain of 25 percentage points, but advanced much less in the towns and medium-sized cities of the south and center-west.

    Further research is needed to reveal why these shifts have occurred, but three hypotheses offer themselves. First, income-supporting benefits were recently hiked, and as they have a greater impact in small cities this might have drawn voters to Bolsonaro. Second, the PT might have taken for granted its regional stronghold of the northeast as it sought votes in the southeast, and Bolsonaro’s support for agribusiness may well have made him more resilient in the center-west, the country’s main agricultural frontier. Third, the pandemic. Under a denialist (mis)management of the disease, ripe with Bolsonaro militating against the use of masks, casting unfounded doubts on the vaccines, and even proffering scoffing remarks towards people’s suffering, the pandemic has claimed nearly 700,000 lives in Brazil and led to some of the highest mortality rates in the world, at about 320 per 100,000 inhabitants. Arguably this helped tilt the overall balance of votes towards the PT, but perhaps particularly so in large cities that might have borne the greatest brunt of the disease. 

    Despite these shifts in 2022, there is an enduring divide between town and city, explored through the cartograms below. They demonstrate three salient points:

    1. Bolsonarismo is fundamentally a medium-sized city phenomenon

    The maps in figure 4 below plot the proportion of Bolsonaro’s votes: the darker the blue, the higher the vote share. Immediately apparent is the lighter tones for the northeast of the country; the area constitutes 28 percent of the electorate but just 16 percent of Bolsonaro’s vote. Large cities also have a lighter hue, reflecting their polarization. In the southeast, for example, the three major cities—São Paulo, Rio de Janeiro to its east, and the capital of Minas Gerais, Belo Horizonte, slightly to the north of the two—have lighter hues than their surroundings.

    Figure 4: Bolsonaro’s Brazil, cartogram of votes for Bolsonaro in Brazil, 2018 (first and second round) and 2022
    Source: prepared by the author based on data from TSE.
    Notes: the area of states and municipalities is proportional to their share of total votes cast for Bolsonaro, i.e. equal areas represent the same number of total votes for Bolsonaro regardless of their hue. The color scheme is based on the vote share for Bolsonaro.

    The fine lines on these cartograms have the value of distinguishing between small, medium and large conurbations. Focusing on the darkest shades of blue, it is apparent that Bolsonaro’s support is greatest in medium-sized cities, which represent about 20 percent of the total electorate. This has been the case for all three elections depicted above; in every region but the northeast, Bolsonaro’s share of the vote has exceeded the PT’s by double digits, often with a gap of 20 or 30 percentage points. 

    2. The PT’s stronghold is small towns

    Figure 5 maps the PT’s share of the vote since 2018. The deep red of the northeast represents Lula’s stronghold there, as it represents between 38 and 47 percent of total votes for the party. Nevertheless, the state of São Paulo has been the largest absolute source of votes for the PT, both in the second round of 2018 and in the first of 2022—despite Bolsonaro ultimately winning there. Of the 57.3 million votes Lula received in 2022, 10.5 million came from the state of São Paulo, followed by 5.9 million from Bahia in the northeast, and 5.8 million from Minas Gerais, in the southeast but bordering the Bahia. In the city of São Paulo itself, the PT went from trailing by twenty-one points in 2018 to leading by nine in 2022, with Lula ultimately receiving 3.3 million votes there, compared to Bolsonaro’s 2.6 million.

    Figure 5: The PT’s Brazil, cartogram of votes for PT presidential candidates in Brazil, 2018 (first and second round) and 2022
    Source: prepared by the author based on data from TSE.
    Notes: the area of states and municipalities is proportional to their share of total votes cast for the PT, i.e. equal areas represent the same number of total votes for the PT regardless of their hue. The color scheme is based on the vote share for the PT.

    The novel element here is that these maps show that it is neither big nor medium-sized cities that constitute the PT’s most reliable base, but small towns. Indeed, every time the PT has gone to an election against Bolsonaro, these small towns across the country have been its electoral bastion, where it has held the highest leads or sustained the smallest losses. In the first round of 2022, this meant a total of excess votes upwards of 50 percentage points in the northeast and a minor lead of one point in the small towns of the southeast.

    3. Major cities are polarized and occasionally flip the state-wide vote

    If large towns are principally the domain of Bolsonaro and smaller towns overall vote for Lula, what of the biggest cities in Brazil? 35 percent of the electorate live in big cities, the largest of which by far is São Paulo, followed by Rio de Janeiro, Brasilia, and then Salvador in the state of Bahia and Belo Horizonte in Minas Gerais. 

    What is noticeable from these maps is that these cities sometimes vote against the rest of the state that surrounds them. This can be seen in Figure 2 above, where in all three rounds, small islands of blue can be identified amid seas of red, or vice-versa. The state of Amazonas in the Northwest of the country is striking: a large, strongly pro-Bolsonaro city—the capital of Manaus—stands out in an otherwise consistent patch of red. The intra-state division revealed here may well be due to the different policies of the PT and Bolsonaro towards the Amazon, which sprawls across most of northwest Brazil. It is nonetheless surprising that Manaus, the largest city in the Amazon, favored Bolsonaro despite having twice suffered the collapse of its healthcare system during the pandemic when hospitals were above capacity, oxygen supplies ran out, and mass graves were required to bury the dead. 

    This means that in states that generally vote for Bolsonaro, medium cities often exacerbate region-wide tendencies and small towns attenuate them; in pro-PT areas, by contrast, the reverse is true. When the voting difference between small towns and medium cities is large enough to make them straddle the political divide, large cities might fall on either side—eventually breaking the broader regional or state-wide tendency. Which is to say, the town and city divide in Brazil is not simply a matter of metropolises versus villages; rather, it works in and through regional dynamics and the urban network.

    Reading the regional divide

    On the eve of the second-round election that will decide the country’s fate, it is worth asking: what accounts for Brazil’s recent voting patterns and why does the country tend to buck the global trend with regard to electoral politics, insofar as its biggest cities can’t be relied upon to vote progressively? 

    An obvious factor contributing to this polarization is the extreme inequality of Brazilian cities. Where small towns in Brazil are certainly marked by deprivation, the very rich and the very poor there less commonly live cheek by jowl. In São Paulo, by contrast, lavish apartment blocks abut shantytowns; in Rio, crumbling favelas with little access to formal services overlook some of the wealthiest neighborhoods. Inequality is by no means unique to Brazil, but it is unlike European cities, for example, where public services are more evenly distributed among urban areas. Cities in the US, by contrast, are more commonly subject to the postcode lottery experienced in Brazil, but sanitation and basic infrastructure are nevertheless generally fixtures throughout the country. This cannot be said for the favelas of shantytowns of Brazil, even in its largest cities, where paved roads, modern sewage, and formal access to electricity remain an aspiration rather than a reality. 

    Large cities in Brazil also benefit from substantial migratory flows but, unlike in the global North, migration is mostly internal, comprising Brazilians from small towns moving across the country. Concerns over security add further fuel to the urban conflict at the heart of these spaces. In this highly contested social space, what emerges is not the open cosmopolitanism that often characterizes the biggest cities of the global North, but rather an entrenched polarization gridlocking individuals into a bitter struggle over deeply constrained processes of social mobility. 

    Overhauling this situation is as urgent as it is likely to be difficult. Bolsonaro’s platform is divisive and exclusionary to its core, so should he hold onto power, there is little hope from that quarter. Lula’s campaign has meanwhile focussed on reviving the conciliatory tone of his former government, but has been lacking in concrete policy proposals. Should he win, he will face a right-wing legislature, no commodities boom to relax spending constraints, and tougher domestic economic conditions with high inflation and public and private debt levels. Bringing towns and cities together in an inclusive development strategy, under these circumstances, will be no mean feat.

  9. An Introduction

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    What crisis?

    A year ago, one might be forgiven for thinking there was a moment of relative calm for wealthy countries: a year of vaccinations had made the pandemic less acute, inflation hadn’t yet provoked interest rate hikes, and labor markets were strong. In the climate world, the energy transition was progressing and, after years of struggle in the UN climate diplomacy track, there was even some sign from rich countries that the poorest and most vulnerable states might be compensated for the loss and damage from climate-fueled disasters. 

    In reality, all was not well. As anticipated early in the pandemic, dozens of low-income and smaller middle-income countries were continuing to grind towards sovereign debt crises provoked by a sudden drop in foreign income and climbing healthcare costs. Creditors (the wealthy Paris Club countries, multilateral banks, bondholders, and China) had all failed to head off this debt crisis. Meanwhile, vaccines remained unavailable to many people in the poorest countries. Energy costs were climbing. 

    Then Russia’s invasion of Ukraine, and historic coordinated economic sanctions by Western governments, made everything much worse—in ways that even the world’s richest countries couldn’t avoid. 

    Energy costs in Europe were already high going into the winter of 2021. This was driven in part by the curtailment of China’s coal-fired generation leading to more demand for imported gas. In 2022, it’s spilled over into other countries: Europe and richer east Asia countries are now in a bidding war for limited gas supplies. Others have been priced out of the market entirely. Pakistan had rolling weeks-long power outages; while gas rationing by Bangladesh was not enough to prevent a grid collapse earlier this month, leaving over a hundred million people to grapple with blackouts. 

    Last week, the IMF forecasted slowing global growth in 2023, and a “material worsening” of world financial stability. Havoc in the real world is pushing a financial crisis in wealthy economies, which in turn will exacerbate real suffering, as food and energy imports are pushed further out of reach of countries struggling to afford US-dollar denominated commodities. 

    In the background to all of this are increasingly frequent and severe weather disasters caused by a warming climate—and the urgent and persistent imperative to eliminate greenhouse gas emissions. Nature does not stay at home. 

    The climate crisis cannot be solved without a thorough reckoning of the relations between the global South and the global North. While the US enjoys primacy in the global financial architecture, and other wealthy countries have outsized influence, developing countries are not without agency. Middle-income powers were either excluded from or unenthusiastic about the G7’s early coordinated sanctions on Russia. They are now using strategic non-alignment—playing one bloc off another—to secure resources and industries, such as transition minerals and chips.

    Global North countries seem unprepared for the economic and geopolitical agency being exercised by the big middle-income countries. Nor are they responding to smaller and poorer nations. The IMF’s new long term facility, the Resilience and Sustainability Trust, is meagre next to the needs of its target recipients: vulnerable countries battling with the pandemic and climate change. But those countries, too, are finding ways to be heard. In September, Barbados PM and recent chair of the World Bank/IMF Development Committee Mia Mottley released the “Bridgetown Agenda,” calling for debt reform, rechanneling of SDRs, and multilateral lending. (Mottley was the subject of a lengthy New York Times profile on how she obtained IMF support in restructuring the tiny country’s US dollar bonds to account for hurricane losses, while avoiding the IMF’s traditional austerity prescription.)

    The Agenda calls for “urgent and decisive action” in the face of an “unprecedented combination of crises,” and will probably attract great interest at COP27 in Egypt next month. But it will have to contend with the vexed question of the $100 billion in climate finance previously promised for the global South, and the thorny issue of loss and damage. India and Indonesia—developing countries that have weathered recent shocks with relative resilience—are taking the helm at the G20. But the possibility of even modest progress in that forum is slim, with geopolitical tensions with Russia making the issuance of a communiqué unlikely.

    Increasingly widespread appeals to the term “polycrisis” are not a get-out-of-of-jail-free card for powerful interests, who must make principled decisions amidst systemic crises. None of this will sort itself out. 

    The Polycrisis aims to untangle the Gordian Knot of security, climate, economic, and political dilemmas. Stay connected here, forward this first edition to three new readers to help us grow our audience, and write to us to continue the conversation.

    Postscript: Why “The Polycrisis ?”

    Over the last year, historian Adam Tooze popularized the term “polycrisis.” Previously deployed by Jean-Claude Juncker in to describe the eurozone-Brexit-climate-refugee crises in 2016, and originally attributed to French complexity theorist Edgar Morin, Tooze explored it again in June with his crisis pictures of overlapping emergencies—pandemic, sovereign debt, inflation, GOP risk, hunger—in which the whole becomes more dangerous than the sum of the parts.

    We also want to acknowledge a debt to economic analyst Nathan Tankus, who articulated the interconnectedness that we want to track in our project, pointing out that his newsletter was called Notes on the Crises, “for the simple reason that this is not the only crisis we will encounter over the next several decades.”

    Our goal is to explore those connections, and to identify and amplify others who are doing the same.

    Email us to join the discussion.

  10. Africa’s Century of Growth?

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    The Wealth and Poverty of African States
    By Morten Jerven
    Cambridge University Press, 2022

    On May 1, 2014, Nigeria’s then-president, Goodluck Jonathan, addressed a crowd of workers in the country’s capital Abuja.  He declared that “the challenge of the country is not poverty, but redistribution of wealth.”1 The prompt for his comment was a report issued only a few days prior, which labeled Nigeria, Africa’s most populous country, as one of only five nations that are home to two-thirds of the world’s population living in extreme poverty.2 Rejecting the categorization of Nigeria as a poor country, President Jonathan pointed to the country’s Gross Domestic Production (GDP), which he declared was “over half a trillion dollars.” Moreover, the economy, he maintained, was “growing at close to 7 percent.”3

    It was only a week before the president’s address that the official figure for Nigeria’s GDP had been significantly revised. The first reexamination of the structure of the Nigerian economy since 1990 showed an increase in the country’s 2013 GDP by 89 percent. Scholars were surprised by the dramatic growth in the banking and telecommunications sectors and the significant decline in the relative size of the hydrocarbon sectors.4

    With little outside recognition, the Nigerian economy had transformed itself in the space of a couple of decades. Once dependent on oil exports, by 2014 the economy had been diversified and was growing rapidly. This was a stark shift from the economy described by IMF observers in 1999, who wrote that “Nigeria’s economic and social development remains far below even the minimum expectations of the population.”5 In that year, half of Nigeria’s population lived in absolute poverty, the life expectancy was only fifty-two years, and infant mortality was eighty-four out of every 1,000 live births.6

    What more recent calculations of the economy reveal, however, is that Nigeria has not suffered from a lack of long-run growth as many scholars of African development had long assumed. Rather, the problem is that growth has not significantly reduced the rates of poverty—today, over 40 percent of Nigeria’s population lives below the  extreme poverty line.7

    Reconceptualizing the African tragedy

    Since independence, scholars across the political spectrum have long debated the reasons for Africa’s abnormally slow growth.8 Much of that writing has been characterized by pessimism,9 but nearly two decades ago, economic historians formed the African Economic History Network in order to challenge the poor quality of data used in narratives about Africa’s economic past, as well as to center Africa’s position in the discipline of economic history. Building on the efforts of this network, Morten Jerven’s new book begins with an assertion that startles our notions of racial hierarchy and global economic history:10 in the long run, Africa’s rate of economic growth is unexceptional. He notes:

    The aggregate pattern is a long period of expansion, sometimes dating from the 1890s to the 1970s. This gave way to widespread failure and decline in the 1980s, followed by two decades of expansion since the late 1990s.11

    The statement stands in stark contradiction to decades of research on African economies, which have been devoted to explaining a persisting failure of economic growth.  Jerven goes on to state that:

    It is true that on average African economies grew more slowly than other economies from the 1960s until the mid-1990s, but that is true only if you take the average of that whole period and let it end in the mid-1990s. It is not true that African economies grew more slowly on average in the 1950s, the 1960s, the 1970s, and the 2000s.12

    What, then, is the source of the growth-resistant narrative? One stylized fact stands behind the perspective that African economies possess structural barriers to growth: during the 1980s and most of the 1990s, African economies grew at far lower rates than the rest of the world.13

    Yet, as Morten Jerven has argued brilliantly since his 2013 book Poor Numbers, the average growth figures from the 1980s and 1990s were overemphasized and erroneously extrapolated from in order to breathe new life into the colonial idea that Africa is an unchanging and stagnant continent mired in poverty.14In Poor Numbers, Jerven unveiled the ways that GDP statistics upon which growth rates were calculated were skewed. In retrospect, the troughs of the 1980s look too deep, and the accelerations of the late 1990s and the African Renaissance of the early 2000s are too fast. Jerven’s book was an indictment of armchair economists and political scientists who performed statistical analyses based on figures tabulated in places like the Penn World Tables, Angus Maddison Index, or the World Development Institute to make causal inferences about why, for instance, Japan is so much richer than Ethiopia. During the first decade of the twenty-first century, these methods led to a revival of work examining Africa’s economic past within North American economics departments.15 The examinations resulted in a series of widely cited and highly influential papers about the long-duration causes of Africa’s relative poverty, which emphasized the inadequacies of African social, cultural, and political institutions. Some of the most famous papers were produced by Daron Acemoglu, Simon Johnson, James Robinson, Nathan Nunn and Leonard Wantchekon.16 Jerven’s adviser, Gareth Austin, argued that this literature, which defined the “new African economic history” and accompanied the rise of causal inference as a method of political science, suffered from what he termed “the compression of history.”17 In particular, Austin argued that by not differentiating between different periods of history, stories of causation become oversimplified.

    The image of African poverty has proven so enduring in part thanks to the depths of what Giovanni Arrighi termed “the African Tragedy.”18 For Arrighi, a few descriptive statistics captured the magnitude of the Sub-Saharan African disaster in the period between 1975 and 1999. For instance, he wrote that in 1975 the Gross National Product (GNP) per capita of Sub-Saharan Africa stood at 17.6 percent of “world” per capita GNP; in 1999 it had fallen to only 10.5 percent. While aggregate national economic income statistics told part of the story, Arrighi also demonstrated that health, mortality, and adult literacy all declined at similarly steep rates in comparison with other developing countries. At the turn of the twentieth century, this contributed to a sentiment captured by The Economist in 2000, when a front cover declared that Africa truly was “The Hopeless Continent.”19

    By 2011, however, The Economist had joined the chorus proclaiming that Africa was “rising,” now re-dubbing Africa “the hopeful continent.”20 Writing breathlessly, the magazine noted that, “over the past decade six of the world’s ten fastest-growing countries were African. In eight of the past ten years, Africa has grown faster than East Asia, including Japan.”21 Equally important, African economies’ rates of growth did not decline with the Global Financial Crisis of 2008. Indeed, The Economist’s lead writers remarked approvingly that in 2011 and 2012, African economies were expected to continue growing at roughly 6 percent a year—about the same as those of emerging Asian economies. According to World Bank statistics, the first two decades of the twenty-first century saw African economies grow at an average of 4.35 percent; well above the global average of roughly 3 percent for the same twenty-year span.22 An entire cottage industry has emerged to explain Africa’s economic renaissance. Much of the analysis has centered on the ability of African states to convert income from the commodity boom—caused by rising Asian demand, especially from China—into sustained development. This has enabled the development of labor-intensive, export-oriented industrialization in several African countries, but questions remain about whether this industrialization can be sustained in countries like Ethiopia, which erupted into civil war in November 2020.23

    In The Wealth and Poverty of African States, Jerven raises an alternative possibility. Rather than a deviation, he posits that the African growth rates in the present century show a reversion to long-standing growth trends. Drawing on original time-series data for several countries in British Africa, including the Gold Coast (Ghana), Sierra Leone, Kenya, Nyasaland (Malawi), Tanganyika (Tanzania), and Uganda, Jerven and his colleagues challenge the standard narratives about African economic development. Since “the data for calculating GDP for African countries before 1950 is scarce,”24 with little available beyond the British government’s colonial blue books, he posits that “the most prudent course of action might be to plead ignorance regarding population growth and agricultural productivity.”25

    Instead, Jerven and his colleagues use the fairly reliable data that exists in government documents for exports, imports, government expenditures and revenue to create a consistent data set spanning the entire twentieth century. As Jerven readily acknowledges, this limits his study to the growth rate in formal markets and excludes the huge informal sector, where the vast majority of economic activity is estimated to take place in many African societies. Despite sparse historical data and the need to make key assumptions about the productivity of the agricultural sector and the quantity of food consumption, Jerven demonstrates that Africa was by no means an economically stagnant continent in the twentieth century. Rather, there was sustained and widespread growth during the colonial and early independence periods ranging from the 1890s to the 1970s. There was indeed a sharp interruption to this growth during the 1980s, but growth resumed in the 1990s, as is the case today. 

    Accounting for poverty

    The outstanding challenge to Jerven’s narrative of continuous economic growth in Sub-Saharan Africa is the persistence of African poverty. Comparative studies between Sub-Saharan African workers and peasants and their peers in Asia have found that the former appear relatively prosperous from 1940 to 1970, yet the picture changes thereafter. As Francois Bourguignon and Christian Morrisson have pointed out, the twentieth century saw dramatic changes to the patterns of global poverty that had dominated the nineteenth century:

    Europe’s ascending supremacy from 1820 until 1950 was checked by the economic rise of the Asian dragons and the relative decline in the European population. At the other end of the spectrum, the dominant change has been the continuously increasing share of Africa among the world’s poor, an evolution that accelerated sharply during the twentieth century. Because of Africa’s rapid population growth and its lower than average economic growth, this region’s share among the world’s poorest 60 percent increased from 8 percent at the end of the nineteenth century to 17.5 percent in 1992.26

    Though this shift in concentrated poverty from Asia to Africa in the aftermath of the Second World War is left unaddressed in Jerven’s book, it nonetheless haunts his work. Jerven makes use of the 2011 real wage data set produced by Frankema and van Waijenburg to show that wages in African urban areas grew steadily and sometimes quite rapidly from the 1880s until the 1960s, particularly in the non-settler colonies of West Africa and Uganda.27 He concludes by noting that “corroborating evidence indicates that the incidence of poverty was not a typical African phenomenon five decades ago.”28 If poverty was a common phenomena during the colonial period, it raises serious questions about the efficacy of the international aid enterprise, which, beginning in the 1970s, made the elimination of poverty its primary policy goal.

    Such an admission makes it all the more pressing to question what did in fact happen in the last decades of the late twentieth century. Drawing on Latin American history, Robert Bates, John H. Coatsworth, and Jeffrey G. Williamson have argued that Africa’s “lost decades” may be akin to the political instability that marred Latin America in the decades immediately following European colonialism. Such a thesis implies that a resumption of growth and relative political stability should have been expected in Africa in the early decades of the twenty-first century.29 Recent data from Ghana appears to justify the theory, insofar as it shows that the sharp rise in rates of African poverty during the 1980s and early 1990s was a temporary phenomenon, and not the beginning of a persistent trend. For instance, in 1991 about 47 percent of Ghanaians lived in extreme poverty, but that number declined to 25 percent in 2005. Yet, as Frankema and van Waijenburg underscore, though there has been a drop in the rate of poverty, Africa is still far behind China. While African economies may have a long track record of growth, the rise in living standards in the post-colonial era has been far too slow.  Without a substantial change in the structure of African economies, poverty seems inevitable.30 Writing two decades ago, Giovanni Arrighi asserted that the tragedy which befell African societies in the 1980s was the result of a dramatic shift in the global economy. In the 1960s and early 1970s, Africa had enjoyed favorable terms of trade, allowing governments to make large investments in their human capital and import-substitution industries. Having made use of the cheap capital available from Western banks, these states soon found themselves suddenly vulnerable to rising interest rates in the United States, leading to a surge in the cost of their debt. The debt crisis that ensued led to structural adjustment policies which in turn greatly curtailed state capacity. All the while, the intensification of the Cold War sparked prolonged conflicts in southern Africa and the Horn of Africa throughout the 1980s.31

    After more than two decades of growth, Africa continues to face a similar problem. Rising interest rates in the United States and growing tensions with China and Russia raise the prospect that African growth will once again be curtailed. The hope, however, is that African economic growth has significantly decoupled from that of developed economies since the crisis of 2008. The maturation of this increasing financial independence can be seen from the rise of Pan-African banks across the continent, and particularly in West Africa. As Hannah Appel warns, however, it is still too early to know whether the rise of Pan-African banks really breaks the mechanisms of dollar dependence that led to Africa’s lost decades in the 1980s.32 We may be entering a period where the growing cost of dollar-denominated capital will force African countries to embark on austerity programs of similar severity to those in the 1980s, which had ruinous results for African societies and long-term state capacity. The hope is that the resilience of African economies and capital markets have improved, making them less vulnerable to a period of US-led financial restriction.  

    The limits of growth

    Though it represents an impressive contribution to the study of African economic history, Jerven’s book nevertheless leaves certain key questions unexplored. Perhaps the weakest element of the book is that its time series begin in the 1890s, roughly the decade in which Britain and France consolidated their control over the continent. This allows Jerven to emphasize what he sees as a weak relationship between domestic policy and economic growth. But while the policy regime a particular country adopts may not have dramatic impacts on its long-term growth rate, it does have serious implications for the domestic distribution of income. The pathbreaking work of Kevan Harris has shown that countries like the Islamic Republic of Iran have reduced income inequality through social welfare measures even while enduring three decades of negative growth rates due to sanctions.33 Jerven has much to say about economic growth, but little to say about the lived experience of that growth.

    Discussing the wealth of Nigeria, former President Goodluck Jonathan concluded, “If you talk about ownership of private jets, Nigeria will be among the first ten countries, yet they are saying that Nigeria is among the five poorest countries.”34 The statement underlines the crux of the real challenge facing African economies—the African continent has the second highest levels of inequality in the world, behind only Latin America. The top 10 percent of the population owns 78 percent of all assets across the continent.35

    Not all growth is equal. On its own, GDP growth does not improve the living standards and experiences of workers. Beyond GDP, domestic policy plays a decisive role in facilitating job creation in productive sectors, ensuring adequate compensation, and offsetting living costs through welfare measures. In determining who benefits from growth, and how much, policy regimes—and the politics that put them into place—still have an enormous role to play.