Obama Has Taken Climate Change off the Agenda

INTERVIEW WITH JEREMY RIFKIN

In a strong rebuttal to the recent so-called ‘Climate-gate,’ ‘Glacier-gate’ and ‘Amazon-gate’ controversies currently surrounding the UN’s beleaguered Intergovernmental Panel on Climate Change, visionary economist and principal architect of the incipient Third Industrial Revolution, Professor Jeremy Rifkin  gave a candid and highly insightful interview to the ECSSR website on the sidelines of its 15th Annual Conference.

During the interview to Dr Adil Rasheed of the Emirates Center for Strategic Studies and Research on February 19, 2010, the Founder and President of the Foundation on Economic Trends spoke extensively on various plans and mechanism for bringing about a global and people-oriented Third Industrial Revolution to save the world from the triple threat of global financial crisis, energy crisis and climate change. He was also critical of the lack of political will in the Obama Administration to confront the threat of global warming. Following are excerpts from the interview:

Q. There has been a lot controversy recently over global warming and that CO2 emissions are the main agent of climate change. We have heard of ‘Climate gate’ controversy, the Himalayan

Professor Jeremy Rifkin

glacier issue, ‘Amazon-gate’ etc. Many commentators allege that Western powers need a new industrial revolution to reverse the economic power shift to Asia and this is why they are promoting an energy revolution. How do you respond to such views?

Answer: This ‘Climate-gate’ is a little nothing. All this has nothing to do with Western powers. Can 2,500 scientists and 125 countries around the world all be part of a conspiracy? I doubt it. If you look at the Third Assessment Report of the UN panel in 2001 and compare it with the fourth assessment report in 2007, it’s pretty frightening. In the 2007 report, what hit us was that we had all gotten it wrong for 30 years. We had underestimated the speed (of climate change) because of the feedback loop. It is extremely difficult to model the feedback loops. We found out it (climate change) is moving so much quicker than we had previously thought. In 2001, the models projected that the glaciers would melt sometime in the 22nd century. The 2007 report are showing that we would have something upwards of 60 percent melt by mid-century, much earlier than we earlier expected.

Q. But this very UN panel, the IPCC, itself accepted that its 2035 deadline for the meltdown of Himalayan glaciers is erroneous.

Answer: No, I am not talking about the Himalayas. I mean across the globe if you look at the mountain ranges, in the Andes and the Alps, we are seeing it happen much faster than we projected in 2001. The Gulf of Mexico is another case in point. In 2001, the speculation was that we would see more heightened hurricane activity in the area around the 22nd century. By 2007— with Katrina, Rita, Gustav, Ike—we saw the intensity of hurricanes double in 20 years. Similarly, the Arctic has been the big shock. In the third report they said open waters may appear in the summers of the 22nd century. By the time of the fourth report we had open waters for three summers in a row. We haven’t seen that in three million years. This isn’t a small blip. Human beings have been around for 175,000 years. There have not been open waters in the Arctic for three million years. And they are saying that this is just a natural change. No it isn’t. Another example is the permafrost situation in Siberia. They had mentioned it in the fourth report, but now that the studies are in they are scaring the hell out of us. What is under the Siberian frost is a ticking time bomb. It’s all the organic deposit of pre-Ice Age. Siberia was once teeming grassland full of animal and plant life. When the temperature of the earth shifts, it shifts dramatically and there are tipping points and the frost in Siberia has now started melting big time. There is more carbon there then all the rain forests in the world and all the CO2 is coming up. In fact, near the sea and lake beds we don’t just have carbon but methane that is 22 times more potent. About a year-and-a-half ago this was first reported in Royal Academy of Sciences and Nature, 12 months later the acceleration is six times faster than we had then projected. This is just one time bomb. And they say this is a business conspiracy. No, it isn’t. The businesses have fought this all the way, especially the energy companies, the utilities companies. And now all of a sudden this is a business conspiracy?! No, I know the companies that are moving toward the Third Industrial Revolution because I put them together. They have finally come to it because there are business opportunities there, the construction companies, the real estate companies, IT companies and some of the utility and logistic companies have made the shift because they see the old ways of businesses are not working, margins are going down and they understand these are new opportunities. In fact, it is good that they are taking advantage of the new business opportunities.

Q. How would the new clean energy-based industrial revolution produce businesses and jobs for communities?

Answer: One of the things we built in to this business model is that we placed conditions on companies to be part of the network so that they could go in and do master plans. The first condition is that all businesses must stay local. So we have Q-Cells for example (the world's largest manufacturer of photovoltaic cells for solar energy), they can go to San Antonio (Texas) and Rome, but they would have to help train local companies, they can even invest in them but eventually all the local companies would stay and do the production. The second condition is that people would control the energy, for which we brought the great cooperatives into this. We have the International Cooperative Association (ICA) pass a resolution to this effect. We are going to set up energy cooperatives in cities. We are already doing it in Rome. We would have energy cooperatives, like housing cooperatives and retail cooperatives, so that people control their own energy and then sell it back to the grid. They would not own and operate the grid, the utility companies would do that but this is the way to democratize energy. So, we see this both as a social market model for the 21st century and I am very clear that the end-goal is to bring power to the people.

Q.  Could you further elaborate on this new cooperatives-based business model?

Answer: The reason why these big companies go into the network that I have set up is that they can have no Plan B. If they go in by themselves, for example, they cannot get a whole city, or a whole region. It was very strange for them to think of working with cooperatives first. Now they understand. Philips or Schneider for example, can now get mass adoption through shared savings agreements with energy cooperatives. These are new business models that bring together market and social model. I am a firm believer in the European idea as you have to balance the market with the social model. Let me clarify here that I am a firm believer in the market and I teach in the oldest business school in the world. I believe in the market as an entrepreneurial engine for risk-taking and for personal creativity, but I also realize that if you completely deregulate the market as we did from Reagan to Bush to Clinton to Bush you end up with a very nasty winner-take-all situation because the market cannot regulate itself and goes wild. That is why you need a strong social model in place, civil society and government, so that the fruits of entrepreneurialism are broadly distributed.

Q. How close we are to supplanting financial innovation with innovation in clean energy industry and how quickly can this new industrial revolution come in and save the world economy?

Answer: I say the technology is there. The four pillars infrastructure for third industrial revolution makes common sense. Every business in the city, in the country and the world says it can be done. But can it be done in time? We have a lot of old interests that are against it. There are a lot of centralized business and political interests…old thinking. The challenge is mainly generational. But we don’t have a lot of time. The window is very narrow here. We need to have a game plan involving the whole human race in Third Industrial Revolution within the next 10 years because it really takes 30 years to roll it out. As for the industrialized countries, they would have to move toward the Third Industrial Revolution say in the next five years.

Q. How much time we have left to reverse climate change?

Answer: We are not going to reverse it, we can slow it down. If our chief climatologist id right, then our young generation is in trouble. But we are going the wrong way, for Copenhagen was a disaster. Nobody seems to want to get back on track. Even the US is not dealing with climate change and Obama has taken it off the agenda.

Q. But the new US budget has made allocations for research and development in clean energy?

Answer:  In the State of the Union address, it was all about nuclear power, coal capture and sequestration, offshore oil and gas drilling and they are still talking renewables, but that is to give something to everyone. It is still the old system with a little bit of the new. I think the EU has to step to the floor here and be a lot tougher.

Q. But will this new industrial revolution be highly capital intensive and create jobs? Will the developing world be at a disadvantage?

Answer: Yes, it is labor intensive. In the next 40 years we would need to build a large energy infrastructure. We would have to put in renewable energies, turn every building into a power plant, have to set up hydrogen storage across countries, reconvert the entire power and transmission lines, set up a new auto industry and set up a new logistics chain. This would be labor intensive. It would create millions of jobs as the infrastructure for the Third Industrial Revolution would be laid down. Once it is done though, we would have to think of creating more jobs in civil society because more jobs will be done by intelligent technology. Developing countries could also be at a particular advantage if they go for early adoption. They would not depend on energy imports but would have their own local energies. There can be solar panels on every home in developing countries if we could only bring their prices down. In fact, there could be re-globalization from the bottom up. You see, geopolitics is a creature of the fossil-fuel era. A lot of people have died to secure coal, oil and gas and uranium. I don’t have to tell you how much exploitation people of this part of the world have suffered at the hands of people from other parts in their bid to colonize the region for bad ends. So if we could get to the idea that all renewable energies would be local, why should it be such a big stretch. But this would require trillions of dollars in commitment, not $50 billion. It would also require a change in the human race and the human heart. We have to see ourselves as one family. That is going to be difficult.

http://www.ecssr.ac.ae/ECSSR/appmanager/nd/42;ECSSR_COOKIE=4QpST1DMywQkQgv5PlwTvhtyjxd5SQmQMv2W05y2wWvChP7yK62P!707032369!-1153648602?_nfpb=true&lang=en&_nfls=false&_pageLabel=P12800666901383799889645&ftId=%2FFeatureTopic%2FECSSR%2FFeatureTopic_1221.xml&_event=viewFeaturedTopic&ftRegion=%2FRegions%2FRegion_0019.xml

A New Berlin Wall

By Adil Rasheed

 August 27, 2014

Although the Berlin Wall fell a quarter of a century ago, German hearts still appear divided between the West and Russia. On the face of it, Berlin has taken center-stage in the West’s diplomatic offensive against Kremlin’s intervention in Ukraine and in the imposition of sanctions against Russia over its ‘annexation’ of Crimea. However, this new-found German assertiveness is beginning to take a toll on its fledgling economic recovery, if not its strategic interests.


Initially, Berlin’s break from its much criticised ‘self-serving passivity’ in international affairs was well-received by its allies. However, Germany has found it difficult to fill in for the US, with the latter’s influence being in perceptible decline. The over 30 highly fraught phone calls between Chancellor Angela Merkel and Russian President Vladimir Putin have only resulted in the hardening of Kremlin’s stance. The unprecedented fall in bund yields in the wake of sanctions has put an additional strain on the economy and the wedge between supporters and detractors of US policies in Germany is widening.

In its July 10 edition, weekly Der Spiegel carried a cover story audaciously titled: “Germany’s Choice: Will it be America or Russia?” It also featured results of its poll, which showed that 57 per cent of Germans feel their country should become more independent of the US when it comes to foreign policy.

 In fact, much vitriol has been spilt in the country’s newspapers over the current foreign policy with two of the leading dailies Handelsblatt and Frankfurter Allgemeine (FAZ) engaged in a fierce debate over it. While writers in the FAZ want Germany’s position against Russia to be more strident, Handelsblatt’s columnists like Gabor Steingart have issued a stark warning of the country sleepwalking toward militarism and war. Others believe that Germany’s current diplomatic engagement is not provocative but designed to avert major war and find a solution to the Ukraine crisis.

It is noteworthy that Germany depends heavily on Russia for oil and gas, which caters to a third of its energy needs. Germany also accounts for 31 per cent of all European exports to Russia (amounting to $52.75 billion in 2012). About 6,200 German companies employing 300,000 workers operate in Russia, selling a wide range of products such as machine tools, pharmaceuticals and cars.

Post-sanctions, these exports have suffered an alarming drop with the German national statistics office Destatis estimating 15.5 per cent fall (to the tune of $20.6 billion) in the first half of this year. More notable has been the decline in the German automobile sector, sliding by a mindboggling 24.4 per cent. These German car manufacturers include the likes of Renault, GM and Peugot Citroen. The prospect of Russia imposing a ban on all car imports has caused an even greater scare in EU markets.

As the economy falters, many Germans are criticising the Merkel government for reversing the ‘Ostpolitik’ with Russia that the country has pursued for over four decades. In fact, since the end of the Cold War, has Berlin struck close economic ties with Moscow, as exemplified in the construction of gas pipelines (like the Nord Stream which connects the two countries directly).
It was this growing relationship that spawned anti-Americanism in Germany in the early 2000s. When President George W. Bush declared war on Iraq, then Chancellor Gerhard Schroder vehemently opposed it.

Thereafter, the Bush administration branded France and Germany as ‘Old Europe,’ unlike the more forward-looking eastern European states opposed to Russia. It is believed that even now Schroeder’s Social Democratic Party (currently in opposition) is not supportive of Merkel’s turning the heat on Russia. Recent diplomatic squabbles with the US and Turkey on spying scandals have further strained Germany’s relations with its Nato allies.

There has also been some alarm over the government’s announcement of sending arms to war zones in Iraq. According to pundits, the move constitutes a fundamental break with the country’s old policy of banning weapons supply to crisis-ridden regions. It is charged that the decision requires Bundestag’s mandate.

In sum, the Fatherland would have to fight many of its inner demons before it charts its way forward. Just as Germany’s ontological struggle shaped the course of history in the last century, its current existential issues would influence the future. As the legendary US statesman Henry Kissinger wryly puts it: “Germany is doomed in some way to play an increasingly important role in the world.”

http://www.khaleejtimes.com/kt-article-display-1.asp?xfile=data/opinion/2014/August/opinion_August39.xml&section=opinion

MANIFESTING THE FUTURE

Indian parties use social media to draft poll manifestos

Khaleej Times (March 7, 2014)

It is often claimed that political parties in India never take their election manifestos seriously. Manifestos, it is said, make for dull reading as parties generally refrain from providing specific details or solutions on crucial issues out of fear that these might provide ammunition to the opposition or the press in targeting the stated policies.

Again, manifestos are generally published just a few weeks or days before the elections. The intent is to

avoid giving the detractors enough time to widely criticise the vision, goals and policies of a party. Therefore, manifestos are viewed by parties largely as a formal democratic custom and at best a public relations exercise to project political personalities at the expense of clear policies and programmes. Thus, it is not surprising that hardly any political party has so far released its manifesto for the Indian general elections of 2014.

However, political parties are viewing the drafting of their manifestos a little differently this time. Hiding their ineptitude in gauging a restive public sentiment, most parties are now soliciting the voters themselves (particularly the young) in writing the manifestos through social media websites. Perhaps, many parties have understood that in upcoming elections, manifestos would be read by a wider audience in the country — thanks to greater Internet accessibility — and would play a more important role in determining a party’s prospects than in earlier elections.

Thus, under the slogan ‘Your Voice Our Pledge’ the Indian National Congress is asking its supporters to “voice your ideas for the Congress Party’s 2014 Lok Sabha Election Manifesto” on a dedicated web site. Even more forthcoming is the Bhartiya Janta Party (BJP), which has a web site titled ‘BJP Manifesto 2014’ and a Facebook page named ‘BJP Election Manifesto’.  The description on the Facebook account reads: “Election manifesto is an important document that defines the policies of the nation for the next government. BJP has started the work on its manifesto for the next general elections. Being a party of grass roots, where anyone can voice his (sic) opinion, you have a once in a lifetime opportunity to get your viewpoint across… ”

The Aam Aadmi Party that claims it was more effective than any other party in its social media campaign during its successful bid in the New Delhi elections is gearing up for its social media campaign during the nation-wide elections and is setting up online pages in various regions of the country for this purpose. Again, it has sought the help of various economists, environmentalists, industry leaders and policymakers to prepare its national manifesto, which is scheduled to be published in late March.

This ‘online manifesto campaign’ by the major political parties cannot be dismissed as merely an election gimmick. The enormity of the crises facing the country and the growing public disaffection with the political system has underscored the need for a major systemic overhaul in various spheres of governance. This would entail a collective rethink and the formulation of new policies that would necessitate greater public support and acceptance. Most political parties are realising the magnitude of the challenges ahead and hence are reaching out to the public for solutions. The trendy information technology is also obviously helping them in their election campaigns all the same.

The problems facing India today are not limited to the supposed ‘endemic corruption’ or a faltering economy. In addition to the burgeoning fiscal and current account deficits, the country needs a fresh approach in centre-state relations, defence policy, foreign affairs, public administration, revenues and taxation, infrastructure development, energy and agriculture, education, law and order and so on. These problems can be resolved through greater public discourse and participation.  Perhaps the public formulation of manifestos by political parties could be taken to a higher level by developing a more broad-based national manifesto. This could be the first step toward transforming India from a representative democracy to a more participative democracy — a governance determined more by policy than personalities, by leadership than by crises.

http://www.khaleejtimes.com/kt-article-display-1.asp?xfile=data/opinion/2014/March/opinion_March10.xml&section=opinion

Drones: Terminators With Gaming Console Joysticks!

By Dr. Adil Rasheed

Article Published on Website of the ECSSR (3 June 2013)

In the wake of the 9/11 attacks, governments and militaries around the world faced a hideous enemy who could morph and blend into the landscape after carrying out asymmetric kamikaze and shoot-and-scoot attacks.

The difficulty in identifying, tracking down and taking out a terrorist required the development of a new and unconventional form of warfare, one which combined search and reconnaissance capabilities as well as the ability to shoot down and eliminate the threat with minimal risk of collateral damage and with few military casualties.

Inevitably, the solution came from cutting-edge technology, particularly the revolutionary innovations taking place in Unmanned Aerial Vehicles (UAVs), popularly known as drones.

This technology proved highly beneficial for militaries, as the large-scale, conventional wars in Afghanistan and Iraq proved inadequate and very costly (both in terms of lives and money) in eradicating the threat of terrorism.


In contrast, drone warfare provided a more effective, less violent and highly cost-efficient alternative to conventional warfare and so it became the preferred option for the Obama administration in conducting the ongoing war against terrorism.

In fact, the technology has now become so ‘convenient’ that it is being frequently used in missions that are considered “too dull, dirty or dangerous” for manned aircraft. In fact, the game consoles wizards are fast replacing fighter pilots of old aircraft as operators of lightweight UAVs. Thus, the tendency to overuse drones in military operations has in itself raised a new set of legal and ethical issues for the technology.

Over 70 Countries Have Drones!

But before addressing some of the legal aspects, it would be important to gain a better understanding of drone technology and its rapid advancement. A drone can be defined as an aircraft which has no human pilot on board. Its flight is controlled either autonomously by computers or through remote control by a pilot situated in a distant location on land or in another vehicle.

Drones have become so popular and pervasive today that according to the US Government Accountability Office (GAO) report, published in February 2012, at least 76 countries already have military unmanned aerial systems. The GAO report adds that the number of countries with drones has ‘nearly doubled’ in the span of seven years.

In fact some drones, particularly Unmanned Combat Air Vehicles (UCAVs), have now achieved worldwide fame that arguably matches the star status of some of the most advanced fighter jets and bombers of our times. The names of Predator (armed with Hellfire missiles), the Reaper and the surveillance aircraft, Global Hawk now bask in international limelight. However, militaries also use UAVs for a variety of other purposes and applications too such as reconnaissance, search and rescue, logistics, research and development applications, etc.

According to some military aviation experts, UAVs today even have the potential to eliminate the use of piloted aircraft in the not-so-distant future. More important, a new swarm of small and insect-like drones are joining the military fleet, adding a surprising twist to a rapidly unfolding hi-tech tale. For years, the US military (particularly its Defense Advanced Research Projects Agency or DARPA) has been working on developing ‘micro-air vehicles,’ i.e. ultra-small flying robots capable of performing surveillance in ‘dangerous’ territory.

The Drone Bugs

According to DARPA, these drone bugs have a wide variety of uses. For example, when fitted with chemical sensors, these insect drones can detect traces of explosives in suspected buildings and caves. Again, these insect-like drones can be equipped with small video cameras that could show whether a building is occupied and whether those inside are civilians or combatants. They could also be equipped with microphones to record sounds and conversations.

For example, the DelFly Micro, is “the smallest flying ornithopter carrying a camera in the world” and measures less than 10cms from one wingtip to another. Then there are the small kamikaze drones that can destroy enemy targets by crashing into them. The drone named ‘Switchblade’, developed by the US technology company AeroVironment, carries a video feed and can locate a hidden enemy like a sniper and kill him. A similar kamikaze drone, called the ‘Devil Killer,’ has been developed by South Korea. But the US military is taking a step further by using neuroscience technology to hack into insects’ bodies, whose movements are then controlled by micro-machines placed on them.

Another promising breakthrough is the control and coordination of a fleet of drones from one computer. It is claimed that a computer software called Ballista, built by the company DreamHammer’s, could enable a single operator to control many drones simultaneously by using an intuitive computer interface. Thus, the movement of several drones being controlled by this software and all of them do not have to be aerial vehicles, as some may be UAVs, while others could be unmanned wheeled rovers, watercraft or even submarines. Thus, one person at the controls could launch a full-scale offensive of drones through air, land and sea.

Drones in Commercial Airspace

Again, drones of all shapes and sizes are not only revolutionizing military technology, they are also about to change civilian lives. Their non-military applications are growing by the day, and they are already used in oil-gas-mineral exploration, search and rescue operations, detection and dousing of forest-fires, agricultural surveillance, commercial aerial surveillance, remote sensing, transportation of various kinds of payloads, etc. Even household drones will soon be available for cleaning and dusting the floor.

Last year, the US Congress passed a bill which requires the Federal Aviation Administration (FAA) to issue regulations on integrating drones into commercial airspace by September 2015. Thus, we are fast approaching the time when anyone, at least in the US, can buy a drone over the counter with a few hundred dollars. In the words of Peter W. Singer, senior fellow at the Brookings Institution, the opening up of the US national airspace to commercial drones would do “what the Internet did to desktop computers.”

However, the commercialization of drone technology is currently facing three important impediments: safety, privacy and insurance. There are concerns that despite legal provisions mid-air collisions between manned aviation (airplanes and helicopters) and unmanned vehicles or even among UAVs could occur frequently. In addition, increased use of private drones (particularly small drones) could intrude upon individual space and violate privacy as drones could pry into homes or offices and transmit images and sounds in real time to their operators stationed far away. Again, insurance companies are reluctant to provide coverage for aerial drone accidents as these unmanned flying objects could fall and cause incalculable damage to people or properties below them.

Convenience to Kill!

However, it is the military uses of drone technology which has really stirred a hornet’s nest for its advocates. One of the pet peeves of peace activists and human rights campaigners that oppose the use of drones by the military stems from the very benefits the technology provides. It is said that because drones are cheap, highly effective, seemingly risk-free for their operators and are adept at minimizing civilian casualties, it is tempting governments and militaries to employ them more often. Many human rights activists charge that it is this convenience that has allowed US military to carry out hundreds of drone strikes on hapless human targets in Afghanistan, Northwest Pakistan, Yemen and Somalia and other regions of the world.

According to estimates by the New America Foundation, there have been 355 drone strikes in Pakistan and 66 in Yemen till date. In February of this year, US Senator Lindsey Graham estimated that about 4,700 people have been killed in America’s drone war, many of whom were innocent civilians. Again in February of this year, The Bureau of Investigative Journalism published its estimates of deaths caused by drone strike in Pakistan, Yemen and Somalia, which, it said, ranged between 3,072 and 4,756.

Again, many legal experts around the world are alarmed by the impunity with which drones allegedly breach international law, violate the sovereignty of nations and carry out extrajudicial killings. Concerns have also been expressed over the lack of transparency, oversight and regulation in these campaigns. Many civil rights advocates were outraged when the Obama administration publicly acknowledged for the first time that four US citizens have been killed in drone strikes since 2009 in Pakistan and Yemen.

Breach of International Sovereignty and the Human Cost!

US President Barack Obama recently addressed most of these concerns by signing a new “presidential policy guidance” on when the US can use drone strikes. On May 23, 2013, he made a groundbreaking speech and declared that he is now going to restrict the use of drone strikes.

He proposed the institution of special courts to decide on targeted assassination of terrorism suspects under new legal regulations to prevent any possible violations. He also said that drone attacks will now be carried out primarily by the US military rather than the CIA, and only after a new test has been passed to ensure that all other alternatives to avoid such strikes have been exhausted.

Human rights campaigners greeted this announcement but continued to have reservations. Many called on the US President to publish the new legal tests that have to be cleared before a drone strike is carried out, as the details of these tests have only been read by the US Congress.

Despite the various legal and ethical challenges attached to the use of drones, it is clear that this technology has now become so popular and widespread around the world that it would be difficult to stop its spread and growth. Therefore, the big test ahead lies for governments, militaries, legal institutions and human rights organizations to properly regulate the uses of this technology for the good of mankind. Like it or not, drones are here to stay or as Peter Singer puts it: “This is a powerful technology. No amount of hand-wringing is going to stop it.”

http://www.ecssr.com/ECSSR/print/ft.jsp?lang=en&ftId=/FeatureTopic/Adil_Rasheed/FeatureTopic_1689.xml

Stock Market Flash Crashes and Risks of High Frequency Trading

By Adil Rasheed

Article for ECSSR Website published on April 29, 2013

After hacking into the twitter account of an international news agency (Associated Press), criminals send out a message that the White House is under attack and the US President has been injured. Immediately, stock markets press the panic button and high speed algorithmic trading plunges the Dow Jones Industrial Average into virtual free-fall (dropping sharply 143 points), as stocks are dumped in the milliseconds. However, sanity is soon restored as the news is found to be false. Stock markets rebound but only not after Standard and Poor’s has fallen one percent and $136 billion in stock value has been wiped out.

This narration is not a piece of fiction, but a report of the ‘flash crash’ that hit US stock markets on April, 23, 2013. Surprisingly, this event is also not a freak accident or an unfamiliar occurrence anymore. In today’s global financial markets, the trend of a sudden and precipitous drop, known as a ‘flash crash,’ is becoming increasingly frequent and alarmingly commonplace.

The above mentioned ‘flash crash’ was not just the first of its kind it was also not the biggest till date. The first ‘flash crash’ took place on May 6, 2010, in which the Dow Jones Industrial Average fell 1000 points (by 9 percent). There have also been other such crashes involving stocks of major companies, including Google, Apple and Bitcoin. It has also been suggested that commodities like agricultural products, oil and gold remain as vulnerable as the stocks of companies in today’s hi-tech stock exchanges.

Flash crashes have added a new element of uncertainty into today’s financial markets. Although still a matter of debate and speculation, the occurrence of flash crashes has been attributed to the rise of computers and their high-speed algorithmic trades that are fast replacing human traders on the floors of the world’s biggest bourses. Studies suggest that automated trading in major US and British stock exchanges already constitute over 50 percent of the total volume.

The use of sophisticated computer algorithms to trade stocks and securities in seconds, or the fraction of a second, is known as High-Frequency Trading (HFT). In fact, HFT involves trading in and out of investment positions tens of thousands of times a day.

With the introduction of this highly automated form of trading, the human element — particularly human assessment, judgment, initiative and enterprise — seems to be declining in global stock markets. In fact, HFT firms are not only conducting most of the trade in stock exchanges, they are doing so almost entirely with each other, as the human trader is unable to process vast amounts of information or trade as rapidly as them. Thus, even as the conventional human trader continues to look for opportunities on a weekly, monthly or longer-term basis, HFT firms take on short-term trades that involve high risks and rewards, which are often thousands of times higher in returns than those sought by their human counterparts.

The enthusiasts of this new technology contend that HFT improves market liquidity. They cite various studies that show that transaction costs for traders have substantially decreased with the growth of these systems. They also point out that computers make for better and honest traders, have enhanced attention spans, follow instructions properly, do not allow emotions to cloud their judgment, monitor and process information from many sources simultaneously and cost a lot less.

On the other hand, the detractors of HFT bewail a long litany of grievances. To begin with, they claim that HFT often causes instability in financial markets and drains out liquidity, especially when it is most needed. They point out that high-frequency liquidity providers had withdrawn from the market, when the May 6, 2010 flash crash was unfolding.

It has also been claimed that HFT is often used for ‘front-running’, an illegal practice wherein program traders learn about incoming orders before other traders and jump in front to make profits. A study conducted last year by Andrei Kirilenko, the chief economist at the US Commodity Futures Trading Commission, found that high frequency traders often make money at the expense of others as their algorithms are capable of gleaning investing patterns of other traders. Some traders also complain that HFT is even used to manipulate markets for economic and even political ends.

Some market experts have also raised the alarm over the ‘technological arms race’ initiated by the HFT. In order to beat competition, they aver, each HFT firm is increasingly spending large amounts of money on new and expensive technology to outpace rival automated competitors. Many economists suggest that if this ‘technological arms race’ does not stop, average investors will become disillusioned and drop out of the stock markets, which will reduce the real volume of trade and will adversely affect economic welfare.

But the biggest charge against HFT is that it remains vulnerable to several forms of systemic risks. For example, trading systems may at times demand too much liquidity too quickly and may cause prices to fall or rise to unreasonable levels. Again, it has been found that algorithms at times place large number of unanticipated orders or a trader misuses an algorithm by setting parameters that cause it to trade aggressively (as is alleged to have happened in the May 2010 crash). There is also the possibility of HFT trades getting trapped into a negative feedback loop in which they take turns into responding to each other. The other huge concern is that the system remains vulnerable to hacking or infiltration by terrorists or even a rogue trader betting on a meltdown. The April 23 incident offers a grim warning, as just a sentence-long tweet was picked up by the HFT computers to cause a major market sell-off. This also raises questions about the linking of HFT to social media network for information.

Current rules and procedures to prevent a ‘flash crash’ range from using circuit-breakers (or so-called ‘kill-switches’) or effecting a five minute pause if trading is unable to occur within the price band for more than 15 seconds. However, these are not viewed as effective solutions by market experts, as the nature of high-volume, high-speed algorithmic trading, is introducing new and unknown variables in stock market operations at a rapid pace. In addition, a flash crash in times of a negative market sentiment will always have the potential of triggering a major meltdown.

Although the impact of flash crashes has till date been manageable, there is always the possibility that a flash crash caused by automated trading systems might snowball into a major systemic crisis, particularly in times of high volatility and stressed market conditions. There is also the danger that terrorists or criminals design a computer virus that causes major structural damage to global financial markets. In the absence of any serious measure to forestall the problem, it seems an accident is just waiting to happen.

http://www.ecssr.ac.ae/ECSSR/appmanager/portal/ecssr?_nfls=false&_nfpb=true&lang=en&_pageLabel=featuredTopicsPage&_event=viewFeaturedTopic&ftId=/FeatureTopic/Adil_Rasheed/FeatureTopic_1677.xml

Anti-Defection Law and the Curse of Coalition Politics

By Adil Rasheed

April 4, 2014

For several years now, the incubus of ‘policy paralysis’ and ‘governance deficit’ has plagued the Indian body politic. 

In Pythagorean terms, the recurring non-terminating factors of irrational political numbers and their strangest of configurations have produced perpetually hung parliaments. It seems to be a Catch 22 situation that oscillates from one disjoint Lok Sabha to another fractured mandate and in the process drains the country of its democratic lifeblood.

Thus, coalition politics with its oversised governments and unaccountable excesses has become the norm ever since India enacted the unprecedented Anti-Defection law in 1985, which disqualifies individual members of parliament to defect from their political parties.  Ostensibly, the law was meant to prevent unseemly scenes of ‘floor-crossing’ and ‘horse-trading,’ but in the process has led to the ossification, if not the hegemony of minor political parties over important matters of governance.

Thus we find bloated coalitions (like the UPA or NDA) unable to pass crucial pieces of legislation or provide effective governance because smaller political parties often blackmail or put narrow, parochial aims ahead of the larger interest of the nation. Individual MPs are forced to adhere to the party whip and are denied the independence to act as responsible legislators. Horse-trading and ‘unparliamentary ‘ practices have all but increased and minor parties often get their pound of flesh in lieu of supporting the slender majority of a political bloc.

It is important to note that the constitution never used the word political party, until the time the Anti-Defection law was introduced as the 52nd Amendment of the 10th Schedule in the Indian Constitution. Not surprisingly, no party has ever complained against the law as it provides every one of them control over the elected legislators.

It would be very difficult for India to have a national party that is able to garner even a simple majority in parliament. Given the problems this situation entails, one should revert to the wisdom of the founders of the constitution and accord more respect to the independence of individual members of parliament.  The winner-takes-all formula may help the biggest party gain the majority, which the country desperately needs for good governance. Such a scenario would be less problematic than the queer combinations that political parties cobble up in the absence of a clear mandate.

http://www.khaleejtimes.com/kt-article-display-1.asp?xfile=/data/editorial/2014/April/editorial_April8.xml&section=editorial

The Threat of Derivatives to the Global Financial System

By Adil Rasheed

13 Jan 2010

In the last two decades, a new and innovative form of trading in complex financial instruments called ‘derivatives’ has caught the fancy of investors around the world. Considered by many economists as extraordinarily useful in providing excess liquidity and stability to the markets, these complex products of financial speculation have ballooned into a $700 trillion global market, which is at least ten times the size of the global GDP.

However, a growing number of economists and investors have started calling the trade in derivatives as the principal cause of the current global financial meltdown, and regard the US subprime mortgage crisis as merely the trigger for dangerous financial instruments—like Collaterized Debt Obligations (CDO) and Credit Default Swaps (CDS)—to unleash an incipient disaster. They aver that the unraveling of banks and financial institutions like Lehman Brothers, American International Group (AIG) and Citigroup that led to the current global financial crisis was a result of the enormous ‘toxic assets’ produced by the derivatives trade.

Even the supporters of these innovative financial instruments now concede that derivatives could work as a double-edged sword, which if unregulated and misused could cause major systemic flaws. Thus, many prominent global economists, investors and politicians have started expressing the fear that unregulated derivatives trade could still become the bane of the global financial system. Nobel economics laureates Joseph Stiglitz, George Akerlof and Myrol Scholes, and renowned investors like George Soros and Marc Faber have called for outlawing at least some of the most complex derivatives like Credit Default Swaps (CDS). Legendary entrepreneur and investor Warren Buffett has gone so far as to call derivatives “financial weapons of mass destruction.”

Despite the enormity of the problem, few understand the complexities involving derivatives or are able to wade through the soup of their abbreviated names like CDOs, CDSs etc. In plain terms, derivatives are financial instruments that do not hold any intrinsic worth but derive their value from an underlying asset, index, event, value or condition. These products are used to speculate or hedge individuals or businesses from perceived risks. Thus, instead of trading or exchanging the underlying asset itself, derivative traders enter into an agreement to exchange cash or other assets over time based on an underlying asset. In other words, derivatives are not assets in themselves, but financial deals made about assets, many of which are simply bets.

Derivatives are generally categorized by the relationship between the underlying and the derivative (for example forward, exchange or swap), the type of underlying asset like currencies, interest rates, shares, debt, property etc. and the market in which they trade (e.g. exchange-traded or over-the-counter derivatives).

These innovative products are so new and complex that their benefits and dangers have not yet been fully tested, explored or comprehended. Often, it takes advanced mathematics to clearly understand how they work. This complexity creates an aura of mystery about derivatives, and there is always an inherent danger of miscalculation. Any undetected error could potentially cause systemic risks. This flies in the face of the maxim circulated in the media today that one should not invest in what one does not understand.

There are also many other risks and dangers associated with derivatives trade. First, derivatives do not require the actual ownership of the underlying asset, and the level of bets often outstrips the level of underlying assets. Thus, even a small move in the value of the underlying asset causes a huge difference in the value of the financial instrument and causes huge anomalies for various financial institutions.

Second, derivatives are usually highly leveraged, as hedge funds and banks which trade in them make extensive use of borrowed money to increase their returns. Thus, investors who make huge amounts of money in the event of an upturn also sustain massive losses even in a marginal downtick, particularly on borrowed money which has a cumulative impact on the financial system in a variety of ways.

There have been many instances of massive losses in derivative markets, such as the crisis that hit AIG, which was overcome only after $85 billion of bailout money was provided by the US government, the loss of $7.2 billion by Societe Generale in January 2008 because of the futures contracts related crises, the $6.4 billion loss in the failed fund Amarnath Advisors in September 2006, the loss of $4.6 billion in the failed fund Long-Term Capital Management in 1998 etc.

Again, majority of derivatives trade is unregulated and takes place between two parties, without going through an exchange or other intermediary. These Over-the Counter (OTC) derivatives, which have an estimated outstanding notional amount of $684 trillion (according to Bank of International Settlements figure of June 2008), often involve high-risk products like swaps, forward rate agreements and exotic options and are free of any regulation as regards disclosure of information between parties. Estimates of OTC amounts of derivatives are difficult because these trades often occur in private. Moreover, the OTC market is made up of big banks and hedge funds, which are too vulnerable and too big to fail for the health of the financial system.

Many economists of the Austrian school deride the derivative market as a “casino” and call it a financial innovation of the Greenspan era that helped “hide the bankruptcy of the financial system following the 1987 stock market crash.” It is alleged that this virtual market was created to allow big banks and speculators to bet on movements of currencies, bonds, stocks and indices associated with them and thereby revive the economy. However, following the bust in the derivatives bubble in 2008, central banks have been allegedly printing money to pay for the “fictitious values and profits” of these derivatives, which in turn is building a hyper-inflationary bomb that has the potential of destabilizing the global financial system once more.

The above claims appear exaggerated, still the US Congress and the Obama administration has started introducing legislation and measures to regulate the unfettered excesses of derivatives trade. However, many in the US Congress are skeptical about the effectiveness of proposed regulations. The chairman of the newly formed Economic Recovery Advisory Board under President Obama and former Chairman of the US Federal Reserve, Paul Volcker is himself a major critic of these products of financial engineering. In a recent interview he said: “I hear about these wonderful innovations in the financial markets, and they sure as hell need a lot of innovation. I can tell you of two—credit-default swaps and collateralized debt obligations—which took us right to the brink of disaster.” With a tinge of sarcasm he later added that for him the best financial innovation in recent decades has been the ATM machine.

http://www.ecssr.ac.ae/ECSSR/print/ft.jsp?lang=en&ftId=/FeatureTopic/ECSSR/FeatureTopic_1205.xml

US, UK Plan to Build New Nuclear Weapons

By Adil Rasheed
October 7, 2007

Just as the international community is trying to check the nuclear ambitions of Iran and North Korea, the present US and UK governments are silently planning to build a new "family of modern nuclear weapons," in utter disregard of the international nuclear non-proliferation regime.

Over the last seven years of the Bush administration, US nuclear policy seems to have changed from one of grudging compliance of its nuclear weapons control and non-proliferation commitments to a more aggressive, if not defiant, approach.

For one, the Bush Administration has backtracked on many of its non-proliferation commitments, and has even claimed that the Nuclear Non-Proliferation Treaty (NPT) can only function if it allows the nuclear powers to maintain their nuclear weapons. The US has also not ratified the Comprehensive Nuclear-Test-Ban Treaty (CTBT), backed nuclear programs of non-NPT nuclear states (like Israel and India), launched multi-billion dollar programs to do research on fusion-based and space-based nuclear weapons, and rejected the verification mechanisms of the Fissile Material Cut-off Treaty.

The Bush administration has also maintained the option of first-use against non-nuclear states and has initiated the process of developing new nuclear weapons under the so-called Reliable Replacement Warhead (RRW) program, on the grounds of reducing its "aging" nuclear stockpile.

Experts point out that as early as 2001; the US Nuclear Policy Statement looked upon nuclear weapons, not just as a means of deterrence but as part of US war-fighting strategy. In pursuance of this approach, the Bush administration has already initiated new strategic nuclear delivery systems including both missiles and bombers, a new Modern Pit Facility with the capacity to manufacture between 250 and 900 nuclear components annually.

The first practical step toward a major revision of US nuclear policy came in May 2003, when the US Senate scrapped the Spratt-Furse law of 1994. This provision had barred research and development into the making of the so-called "mini-nukes," so that nuclear weapons are not used indiscriminately in wars. After the annulment of the Spratt-Furse law, the Bush administration sought to launch the Advanced Concepts Initiative (ACI) and the Robust Nuclear Earth Penetrator (RNEP).

The ACI program was aimed at designing new and modified warheads, having lower yields, specific radiation outputs, and other blast effects. The RNEP sought to increase the penetration of nuclear weapons deep into the ground before detonating. This was aimed at increasing the ability of "bunker-busting" weapons in destroying buried targets. The administration also sought funds for reducing the maximum time between a presidential order to conduct a nuclear test and the test itself to 18 months, shortening the earlier duration of 24 to 36 months. Congress passed these provisions and they became law by the end of 2003. However, in 2004, US Congress unexpectedly decided to curtail funding for all these initiatives, and wiped out the ACI and RNEP budgets. However, the Jane's Information Group suspects that RNEP project, though cancelled, may yet continue under a different name.

Undeterred by these setbacks at the US legislative level, the Bush administration approved a plan in October 2006 to completely revamp all US nuclear weapons facilities by 2030 (under the name "Complex 2030"), consolidate weapons-grade plutonium stocks, and build a new stockpile of around re-designed 1,700 to 2,200 nuclear warheads under the Reliable Replacement Warhead (RRW) program. The RRWs are meant to gradually replace the existing 6,600 warheads and are planned to have a longevity till the end of this century. The cost of this "Complex 2030" plan has been estimated at about US$ 100-$150 billion.

The centerpiece of Complex 2030 is the Reliable Replacement Warhead (RRW) program. Although the types of warheads to be built under the RRW program remain unclear, its aim is to design new nuclear weapons that are "highly reliable, easy, and safe to manufacture, monitor, and test." It is claimed that the program would help in rapidly adapting, repairing, or modifying existing weapons and in developing new weapons, according to changing needs of the military.

It is noteworthy that the United States has not developed a new nuclear weapon since 1988. However, on March 2, 2007, the US Department of Energy selected a new design for the first nuclear weapon to be produced after the Cold War under the RRW program. Supporters of the RRW program have raised doubts concerning the safety, security, and reliability of the "aging" US nuclear weapons stockpile, which under the "Stockpile Stewardship" program are inspected and certified annually.

Critics of the RRW program contend that one does not need to develop new nuclear weapons to carryout the promised cut down in US nuclear stockpile. This, the claim, is against the letter and spirit of the disarmament agreements. As for the argument on the reliability of the aging nukes, a leaked report of a secret federal panel "codenamed Jason" is said to have exposed this claim as false. As revealed by the Union of Concerned Scientists, Jason found that the existing US nuclear stockpile was in good condition and still had a life of another century or more. Therefore, while the official version is that the RRWs are only intended to replace existing ¿aging¿ warheads, critics say they are new generation weapons to keep the US ahead in global nuclear dominance.

They contend that the RRW program is contrary to the provision of "general and complete disarmament" of atomic weapons sought by the Nuclear Non-Proliferation Treaty (NPT), which the US has signed. Opponents of the RRW program also worry that that this program has the potential of damaging US national security, and that it would disrupt the global cooperation in nonproliferation that is vital to diplomacy with emerging nuclear powers such as Iran and North Korea. Moreover, the development of new designs, especially a hybrid design, may necessitate the testing of new warheads at some point in the future. A US explosive test would completely shatter the international moratorium and open the floodgates to tests by other states.

Fortunately, this year the US House of Representatives stripped away money for the RRW program from the Energy Department's upcoming budget, while the Senate agreed to only partially fund the program. However, a final budget has yet to be approved in Congress.

Meanwhile, Britain's Labor government has also accompanied the US in reactivating its nuclear weapons program. In December 2006, a White Paper spoke of plans to repair and renew Britain's nuclear arsenal, which mainly comprises the submarine-based Trident missiles. Then in March 2007, the British government won support for plans to renew its nuclear submarine system in the House of Commons. It has been reported that the government would spend between £15bn and £20bn on new submarines to carry the Trident missiles. The fleet will take an estimated 17 years to develop and build, and will last until 2050.

Around the same time, Britain's Guardian newspaper reported that the Trident nuclear weapons are being secretly upgraded to increase their accuracy and ability to attack a wider range of targets. It claimed that the British Ministry of Defense had admitted that a new firing device, called the Arming, Fusing and Firing (AF&F) system, developed by the US is to be installed in Britain's nuclear weapons system by scientists at the Atomic Weapons Research Establishment at Aldermaston in Berkshire. The disclosure angered anti-nuclear campaigners, who called the AF&F an offensive weapon, and not a defensive deterrent.

Therefore, it is not surprising that the IAEA chief Mohammad El-Baradei, has been highly critical of the British push for more nuclear weapons. This was clear in his speech given at the London School of Economics, where he stated, "Britain cannot expect other countries to refrain from acquiring nuclear weapons if it upgrades Trident. Other countries are told nuclear weapons are counter-productive because they do not protect your security. But, when they look to the big boys, what do they see?" he asked. "They see increasing reliance on nuclear weapons for security. They also see weapons being continually modernized."

Clearly, if the United States and Britain keep re-arming themselves with new nuclear weapons, it would rob them of the legitimacy to protest and take action against countries like Iran and North Korea, who are ambitiously pursuing their nuclear programs. It is for this simple reason that the nuclear Non-Proliferation Treaty (NPT) calls upon the five officially recognized nuclear weapon states to move gradually towards complete and universal nuclear disarmament.

http://www.ecssr.ac.ae/ECSSR/appmanager/nd/42;ECSSR_COOKIE=QWyZTgyZyhnDQyL4WgKkNbMQj6G0j802kz6Bbp9TnNqHTSh2JKRy!-908475106!-700593636?_nfpb=true&_nfls=false&_pageLabel=P12800666901383799889645&ftId=%2FFeatureTopic%2FAdil_Rasheed%2FFeatureTopic_0873.xml&_event=viewFeaturedTopic&categoryId=Military+Capabilities+%26+Arms+Race&lang=en

Will India Test More Nukes in The Future?

Published in Emirates News newspaper, Op-Ed Page (June 21, 1998)

The Indian nuclear explosions last month were not just a new kind of populist device triggered off by the nationalist BJP party to upset the political applecart of its many coalition partners and the Opposition. The fact is that such programs involve long and sustained preparations and could not have been initiated during the brief tenure of the new government.

The Indian nuclear program has been facing a serious crisis for some time now, as the Comprehensive Test Ban Treaty (CTBT) and the Fissile Material Cut Off Treaty (FMCT) are threatening its survival. India has to sign the CTBT by September 24, 1999, without which the treat cannot come into force. This could give India not only a worse label than the ‘spoiler’ it earned from the nuclear powers in 1996, but as per Article XIV of the draft treaty, a conference may decide what measures are to be taken to facilitate the early ‘entry into force’ (EIF) of the treaty.

If India signs the CTBT then it will not be able to conduct (according to Article 1 of the Treaty) “any nuclear test explosion or any other nuclear explosion,” and on the basis of the negotiating record this is understood to include all nuclear explosions with yields above zero, in accordance with US President Bill Clinton’s August 1995 proposals.

Article IV of the verification protocol provides for a tough verification regime which will rest on an International Monitoring System and on-site inspections.

The draft treaty exempts the nuclear powers from conducting sub-critical tests, developing and refining their nuclear weapons through computer simulations and so forth, a technology the threshold nuclear states can develop only after conducting many test explosions.

According to M.R. Srinivasan, former chairman of the Atomic Energy Commission of India, the CTBT would lead to “freezing technology levels at current capabilities, with additional support base of analysis, theory, computer modeling and so forth.”

So if India wants to be a signatory to the CTBT without becoming a nuclear imbecile, it may have to conduct more tests before September 1999, just as China and France did in 1996. The recent statements by Gauhar Ayub Khan that India may be considering more nuclear experiments and a statement by Pakistan Foreign Ministry spokesman on June 18 that its moratorium on nuclear tests could be lifted if it was in the national interest to do so suggest that any further nuclear tests in the subcontinent cannot be ruled out.

In a post-Cold War world, neither India nor Pakistan can depend on their erstwhile allies on issues related to defense and therefore will find it very difficult to compromise with their respective nuclear programs.

The parameters of mutual assured destruction (MAD) have undergone a change over the years. The big and cumbersome atomic bombs, capable of destroying large civilian populations, are surviving merely as deterrents. The smaller tritium backed thermonuclear devices, easy to load on to ballistic missiles, capable of hitting strategic military and nuclear sites with limited and effective destructive capability and pinpoint accuracy, will have the edge now in any war-like scenario.

In the words of retired Rear Admiral Raja Menon there is a difference between counter value and counter force nuclear weapons. “The former are inaccurate and have large kilo tonnage, since they can only destroy population centers. The latter are accurate, smaller and target hostile nuclear weapons sites.” But to develop the counter force technology one needs to achieve “non-explosive testing, so that the nuclear arsenal can be upgraded … as the US is doing.”

The Fissile Material Cut Off Treaty (FMCT), negotiations for which will begin soon in Geneva, is meant to prohibit all further production of fissile material (enriched uranium and plutonium) for weapons purposes, or outside safeguards in all countries.

India objects to this draft treaty as it claims “it would in effect disarm the threshold states’” while leaving nuclear weapons on states with huge stocks of weapons grade fissile material. The FMCT, Indian experts states, can prove even worse for the Indian nuclear program. In the words of strategic affairs analyst Savita Dutt, the FMCT could serve the purpose of “capping, rolling back and eventually eliminating” India’s nuclear weapons capability, while leaving huge stockpiles of the nuclear weapons states in place.

Therefore, both the CTBT and the FMCT could hold India back from rising to the level of conducting sub-critical tests and building sufficient data for computer simulation soon and may relegate it to be a minor nuclear power with only a few crude atomic bombs.

The date of ratification for the CTBT may literally become the deadline for its nuclear program. The question is whether India has the requisite technology and more importantly the political will to go for an ambitious nuclear program? Will it be able to weather the adverse consequences at the international levels? Can it keep the Buddha smiling, even if public opinion changes and the demand for nuclear-backed power increases.