The ugly truth about palm oil

Reading time: 5 minutes

Palm oil is a silent presence in most of our daily lives. It can be found from bread to ice cream, from toothpaste to chips and from soap to fuel, but do we really know the truth about it? 

Palm oil is an edible vegetable oil original of a palm tree named Elaeis guineensis, native from Africa, even though most plantations nowadays are in south-east Asia, with Indonesia and Malaysia representing 85% of global production. Due to its characteristics, such as high saturation, oxidation resistance, stability at high temperatures, low cost and versatility, it is widely adopted on a globe scale.  

It can be found in more than a half of packaged products consumed in the US, in 70% of personal care items and it can be used as animal feed, as a biofuel or as cooking oil, and it is estimated that we consume, in a global average, 8kg of palm oil per year, making it the most used and demanded vegetable oil in the world.  

On the one hand, this crop is the most efficient when compared with others, such as soy, coconut or sunflower. Also, its costs of production are lower than every other animal or vegetable oil, making it very cheap and accessible to the consumer, allowing it to be the used widely as a cooking oil in Asia, where the economic and demographic growth would lead to the increase in demand in the future (today India, China and Indonesia account for 40% of the world’s consumption). In the west, it was adopted in some diets, because it is healthier than other fats, and its use as a biofuel corresponds to more than half of its importation into Europe. 

To supply all the palm oil demand with alternative vegetable oil, it would take almost five times more land than coconut, sunflower and rapeseed, and more than eight times soy. Due to this, palm oil supplies 35% of the world’s vegetable oil, on just 10% of the land. Thus, the suppliers were encouraged to increase production, and, for that purpose, they counted with the support of private funds, bank loans and the IMF (International Monetary Fund). 

This industry has a considerable impact on the economies of its producers, accounting for 13,7% of Malaysia’s gross national income, and it is the product more exported by Indonesia, the world’s top producer, accounting for nearly 40% of the worldwide production, providing employment to over two million Indonesians directly. 

Between 1995 and 2015, its annual production quadrupled, from 15.2m tonnes to 62.6m tonnes and by 2050, it is expected to quadruple again, reaching 240m tonnes, which lead the production to spread through Africa and Latin America. This production expansion promoted an increase in employment in this sector and, consequently, could lead to a decrease in poverty. However, this is not what has been happening

The workers in Malaysia and Indonesia complain about gender inequality: “The women on the plantations have no rights, not even the right to a salary in many cases” says Herwin Nasution, president of SERBUNDO, a trade union alliance representing mainly agricultural workers in Indonesia. The inexistence of an official employment contract makes these workers vulnerable to illegal conditions, turning the plantations into a place where labour exploitation and human rights abuse are a reality, and where, sometimes, child labour is found.  

In fact, the working conditions are very poor, with long shifts, limited access to clean water and use of toxic chemicals without adequate protective equipment, and the workers receive no support from their employees regarding health insurance, maternity license or school facilities.  

Additionally, palm oil production has a devastating impact on the environment. In order to produce the palm trees, tropical forests were burned and cut down, in one of the regions of the globe with more biodiversity and making it responsible for about 8% of the world’s deforestation between 1990 and 2008 (only in Indonesia there was recorded a loss of 25.6 million hectares of tree cover, during the period from 2001 to 2018). By burning these forests, greenhouse gas is released, namely CO2, having a severe contribution to global warming, and it is the main reason why Indonesia is the third country in the world with more gas emissions. Moreover, the intensive cultivation method without planning or care for the environment could lead to soil erosion and water pollution.  

Furthermore, it destroys the habitat of hundreds of species, even when it is considered illegal, as it happened in Riau, Indonesia, one of the most affected regions, where 84% of elephants living there died after losing 65% of its forest, in the last quarter a century. But Bornean Pygmy elephants weren’t the only ones affected by the deforestation. More than 100,000 Bornean orangutans, a critically endangered species, died between 1999 and 2015, and almost 75% of Tesso Nilo National Park in Sumatra, that secured the habitat for the endangered Sumatran tiger is now covered with illegal palm oil plantations.  

You could think that a way to solve this would be if we stopped producing or consuming it, and instead started buying other vegetable oils, such as soy. However, the problem would remain, because the need to make way to the plantation would stay the same. Also, these other plantations would need more land than palm oil, making these alternatives possibly worse, and, besides that, none of them would be a perfect substitute since none of them has the same versatility, utility or functionality as palm oil.

Despite this, the palm oil problem could still be lessened. The solution to this problem could be to change the way it is produced to a more sustainable one, that respects the rights of workers, recognizes the responsibility with the environment and uses the effluents and waste to other activities, along with the increase of inspections in order to close all the illegal plantations. The consumer could distinguish the products produced in a sustainable way through the RSPO (Roundtable on Sustainable Palm Oil) certificate (around 20% of the world’s production), that forbids deforestation and promotes the conservation of these highly diverse habitats.

The awareness regarding this topic has increased and, as a consequence, several companies and countries demand the production of this vegetable oil to have a certification of sustainability or are applying measures against it. In Norway, all importations of this oil as biofuel were banned, and in the UK, the supermarket chain Iceland started a campaign[1] to ban palm oil from their label products until it is proven to be of sustainable origin. In some cases, we can already see the results, such as in the UK, where 75% of the total palm oil imported was sustainable, by 2016.  

With development economies pursuing an exponential growth in palm oil production, such as Colombia, where fields that were formerly used to coca plantation or to raise cattle are converted to palm trees plantations, making it more sustainable, a new tomorrow to palm oil production arises.


[1] An example of this campaign is the following advertisement: https://www.youtube.com/watch?v=oA10-oZi4Xc


Sources: The Guardian, Org, WorldWildlife, Statista, Dialogochino, Cell, BBC

Mariana Gomes

European Football | Cash is king in the king of sports

Reading time: 7 minutes

Football is king in Europe; it is a sport that moves millions of die-hard fans as well as billions of euros every year, 28.9 in 2019 to be precise. Despite the fact that the COVID-19 pandemic took a major hit on the finances of most football clubs, the revenue of the big five leagues (England, Germany, Spain, Italy and France) is expected to reach a new record of 18.2 billion euros in 2021.

Even tough business seems prosperous, there are a number of problems to be addressed, and the Super League, the international competition announced earlier this year that quickly fell apart, suggests that the elite of football wants to solve only their own problems. It is, however, important not to forget that this competition points to a huge problem in modern football – the growing asymmetries within the sport.  

How did we get here?

Disregarding the health-driven financial crisis lived today, Football’s health has been struggling for a while now, as there has been an overall overspending by teams, mainly from larger clubs, either on the acquisition fees or payroll. Moreover, most domestic leagues have become uncompetitive and monotonous and, there has been a lack of commercial interest in most of the “smaller” confronts.

The importance of the competitions and broadcasting’s income for the clubs and their rapid growth have led to major “financial confronts” outside the pitch, with every club looking for the best talent out there. This has been transformed into skyrocketing wages and transfer fees between clubs, with the average Premier League transfer fee having more than tripled since 2007, to an average of more than £16 million. 

Figure 2 – Average Premier League Transfer Fee
Source: Chronicle Live

This has been made possible by overleveraging clubs, through debt or the help of wealthy owners, who can invest large sums of money in hope titles. In fact, only one of the 12 initial clubs in the Super League is free of debt, with several of them having a large net debt as of 2021, which, by not being accompanied by positive profits, keeps increasing from season to season. This has led to enormous asymmetries between those who can sustain said debts, or have wealthy owners who can bail them, and those who rely solely on their revenues from more conventional sources.

Figure 3 – Net Debt of Super League Founding Member
Source: Bloomberg

On the other hand, leagues have been struggling with commercial interest on some of their games, especially those between smaller teams. TV broadcasting rights and sponsorships, which play an important role on clubs’ revenues, also help perpetuate the differences between teams, with some in leagues where there is no “unified type” of TV rights selloff seeing a larger disparity, whereas in the Premier League or Bundesliga there is a more centralized and organized revenue sharing.

This reality leads to the final problem Football is facing: most domestic leagues are becoming uncompetitive. Looking at Top-5 leagues, only the Premier League has constantly 6 teams fighting for the title, whereas the others either have 2 main competitors (La Liga and Bundesliga), or even a single competitor that stands immensely (Serie A and Ligue 1). This era has become more and more polarized between title candidates, and the others, with the second group playing on an unleveled playing ground, and only in some rare occasions being able to surprise the recurrent candidates. This diminishes the spectacle of football, and only helps perpetuate the problems in Football, the inequalities and the surviving difficulties small teams suffer recurrently.

Figure 4  – Market Size of Professional Football Leagues in Europe from 2017 to 2019, by league type (in billion euros)
Source: Statista

How did COVID-19 put the Super League on the table again?

The COVID-19 pandemic affected our lives in every possible dimension, with football not being an exception. According to KPMG, the pandemic had a $5 billion impact on the sport, with the biggest clubs alone having $1 billion losses in revenues.

Figure 5 – Aggregate revenue in European top divisions (in EUR million)
Source: KPMG and UEFA

With the major European clubs taking major hits to their finances because of COVID-19, the plan of a European Super League (ESL) came abruptly to the foreground this April, in an attempt to ramp up revenues.

What is the plan, then?

According to the official ESL plan put out in mid-April, 12 major European clubs (+3 that would be announced) would join as Founding Clubs and the competition would consist of a closed tournament between those teams and 5 other teams in rotating slots that would be chosen each season.

This plan has major implications for the economics of European football:

Firstly, each founding member would have received around $400 million for the founding of the ESL. Secondly, revenues coming from broadcasting and advertising would be much more concentrated on the ESL founding member-clubs, because such a league would siphon off much of the attention from the Champions League and other competitions in Europe. Furthermore, as an essentially walled-off competition, the ESL would hurt revenues of smaller clubs which would be left out of the ESL’s elite roster, thus losing access to the millions of the European stage.

Finally, it could have large impacts on the wages paid to players and on the clubs’ finances, as many large clubs spend considerable percentages of their revenues on players’ wages to attract the best players in the world, and ultimately win titles.

Figure 6 – Wage burden of clubs looking to join the new Super League
Source: FT

The new ESL founding clubs would commit to spending limits of 55% on wages. This would reduce competitive behaviour between these large clubs, leading to lower wages for players and more profits for clubs.

The potential negative effects on smaller clubs and the fact that the 15 founding clubs would have their place in the ESL guaranteed, no matter what, led to outrage from both football fans and football confederations, who claimed that this would further increase the inequality between clubs and would hurt the spirit of the sport. The UEFA went further threatening sanctions against the clubs who would undertake the project, namely barring clubs from all its competitions and preventing their players from representing their national teams.

Eventually, as pressures from the backlash increased against the large clubs, even from politicians, English clubs began to pull out from the ESL project and the ESL put out a statement saying that the project was “suspended”.

What does the future hold for European Football?

Though the Super League was killed off earlier this year, it does not mean that European Football will stay the same, as a new format of the Champions League is to come into effect in 2024. Moreover, an all-new tournament is coming in 2021, the UEFA Europa Conference League, a third-tier competition. The new Champions League will adopt a swiss-style model instead of the traditional group stage, and there will be a single league in which teams play 10 games each against “teams of their level” to qualify for the knock-out stage. This new format addresses some complaints of the biggest clubs regarding the quality of the matches, as the best teams will face each other more frequently. Furthermore, the addition of 4 more teams to the competition serves the same purpose as the Conference League, that is allowing for more teams to have a chance in the European stage, hopefully making the sport more competitive, which is what fans look for. The problems that football faces today are not exclusive to the sport. We have witnessed sports introducing significant changes in order to remain relevant. Formula 1 is a great example, as the sport has changed itself over the years, managing to attract a new generation of fans in return. F1, perhaps the most expensive sport in the world in which money means titles, recently announced budget caps, as well as sliding scale for car development, which intends to create a level playing field for teams and ultimately make the sport more interesting for fans.

Figure 7 – F1 rebranded itself in 2017 to attract new fans
Source: F1

Football faces the same challenges as F1 in terms of competitiveness and the difficulty to resonate with a new generation of fans that, due to social media, is more interested in the accomplishments of players such as Ronaldo or Messi than in their teams’. Consequently, football must constantly reinvent itself too, without losing the essence that made it what it is today.

Football is at a crosswalk; the sport must remain relevant in the modern era of entertainment and social media, while still being a profitable business. The innovations brought by UEFA show that the sport is evolving. However, that alone will not make it. Certainly, the smaller teams will get a bigger pie of the money and the elite better matches, though that will be verified only in the short run.


Sources: Bloomberg, Chronicle Live, FiveThirtyEight, Financial Times, KPMG, The New York Times, Statista, UEFA

Tiago Rebelo

João Baptista

Jorge Lousada

German elections

Reading time: 6 minutes

In September of this year, German voters will head to the polls to elect a new Bundestag or German Federal Parliament. However, for the first time in 16 years, they will not be able to vote for Angela Merkel, who announced in 2018, she would not run for a fifth consecutive term. Angela Merkel was the first female Chancellor of Germany and has been widely described as the de facto leader of Europe. If the reader wishes to know more about the legacy Merkel leaves behind, both in Germany and the European Union, we have written two articles that discuss this very topic. You can find part one here [Merkel Part 1] and part two here [Merkel Part 2]. So, if Merkel is out, who will be the next Chancellor of Germany? Let us look at the three front-runners.

Main candidates

Figure 1 – Armin Laschet; Source: FR.d; Taken by Federico Gambarini

Armin Laschet is a 60-year-old former layer and journalist. He is currently the State Premier of North Rhine-Westphalia, the most populous state in Germany. Laschet is the current leader of the center-right party, Christian Democratic Union of Germany (CDU), and he will head to the elections under a political alliance between CDU and the Christian Social Union of Bavaria (CSU), the latter being a sister party of the CDU that operates in the German state of Bavaria. Angela Merkel was the leader of this political alliance in the elections from 2005 to 2017, so the reader can think of Laschet as her successor.

Figure 2 – Annalena Baerbock; Source: buchreport.de

Annalena Baerbock is a 40-year-old member of the Bundestag, and co-leader of the center-left party alliance called the Greens. In April, the Baerbock was announced as the Greens’ candidate for Chancellor for this year’s federal elections, which was the first time the Greens announced a sole candidate for Germany’s head of government. She has been a member of parliament since 2013 but has never held any public office.

Figure 3 – Olaf Scholz; Source: globsec.org

Olaf Scholz, 62-years-old is the current Vice-Chancellor and Minister of Finance of Germany. He is the nominee of the center-left Social Democratic Party of Germany (SDP) for Chancellor. He has been part of the SDP since 1975 and has had a long political career. He is seen as being part of the more conservative wing of the SDP. Scholz is by far the most experienced candidate of the three.

What do the polls tell us?

As for the time of writing, it is still early to tell who will win the elections in September. The current polls show the Greens of Annalena Baerbock ahead in the polls. Despite her lack of political experience, Baerbock’s smooth nomination process and message of reshaping German politics have resonated with voters. In second in the polls and within the margin of error comes Armin Laschet’s CDU/CSU bloc. The long political battle between the two parties of this alliance to choose the nominee for Chancellor and widespread accusations of corruption against some CDU members of parliament have damaged the image of the bloc in the public sphere. In third, and quite far away from both the Greens and the CDU/CSU block, is Olaf Scholz’s SDP. Despite being either the largest or second largest party in every election since the end of WWII, the SDP has been on a declining trend over the last 16 years and had its worst result since 1932 on the last Federal elections. If the party does not manage to recover, it will have its worst electoral performance since 1887 (134 years ago).

The numbers now show that the winner in September will be either Baerbock or Laschet, however, both parties are polling quite far away from winning an absolute majority in the Bundestag. Therefore, either one will face the challenging task of forming a coalition able to govern Germany until 2026.

Consequences on for the EU

However, the Chancellor of Germany is often described as the de facto leader of Europe, so it is important to understand what type of policies the two favorite candidates defend for the EU.

Figure 4 – Time’s Magazine Cover from January 11th 2020

Both candidates are pro-European, with Laschet recently saying that “in any global problem-solving, we need multilateral solutions, we need a European Germany.” However, their views towards Europe are quite different.

Armin Laschet is one of Merkel’s closest political allies so his policies towards the EU and other European countries will follow in the steps of his predecessor. He is a strong defender of Merkel’s stance on the Covid-19 recovery package and controversial migration policy. He has also defended a closer relationship between Germany and France, and an attempt to improve diplomatic relations between the EU and Russia. In his program, “Impulse 2021”, Laschet states the importance of completing the Single Market, increasing the use of qualified majority voting, and reinforcing the European Border and Coast Guard Agency.

On the other hand, the election of Annalena Baerbock could dramatically change the EU and its relationship with the rest of the continent and the rest of the world. First, Baerbock has defended the reform of the German “debt brake” that prohibits the government from having a structural deficit above 0.35% of GDP, saying it leads to low public investment, which in turn, hurts the competitivity of the German economy, additionally it makes it harder for the country to fight global warming. This change in fiscal policy could translate into a less strict approach by Germany towards fiscal responsibility being forced upon highly indebted European countries, such as Italy and Greece. The Greens have also defended making the EU’s recovery package permanent, and that the Stability and Growth Pact is excessive and should be reformed. For the readers who do not know, the Stability and Growth Pact is a set of fiscal rules which state EU countries cannot have budget deficits above 3% of GDP and the national debt cannot surpass 60% of GDP. As of 2021, only 13 of the 27 member states meet both criteria, and Germany is not one of them. Baerbock’s dedicated support for action against global warming will also likely lead to a more climate-focused EU, she has even supported a transatlantic Green Deal. As for Russia, Baerbock defends the suspension of Nord Stream 2, a project set to deliver Russian natural gas to Germany through the Baltic Sea, and defends a tougher stance against Putin’s actions on Ukraine. Regarding China, the Greens see a necessity for Europe to cooperate with the country to fight climate change, however, the party advocates for EU sanctions on China over its treatment of the Uighurs minority. The reader can learn more about China’s violations of human rights against Uighurs in this previous article [Uighurs] we have written about the topic. The Greens have also shown opposition against the EU’s recently concluded Comprehensive Investment Agreement (CAI) with Beijing and seeks to block Huawei’s participation in Europe’s switch to 5G.  

As already mentioned in this article, it is still too early to know what will happen in this year’s election, and Laschet’s or Baerbock’s ability to change the European Union’s domestic and foreign policy will depend not only on their electoral result but on what sort of coalition they will be able to form to govern Germany. However, there is one thing we know for certain, with Merkel’s exit, come 2022, Germany and the EU will have a new leader.

Sources: The Wall Street Journal, Rusi, Politico, BBC, CNBC, DW, The Economist, Financial Times, The Times


Francisco Pereira

João Sande e Castro

Pedro Afonso Estorninho

The Asian Tigers: Successful Economic Development in the XXth Century

Reading time: 7 minutes

Introduction 

After the Second World War, East Asia was facing multiple political and economic problems. Few would predict that four countries in the region would be the best example of successful development: Hong Kong, Singapore, Taiwan, and South Korea embarked on an unprecedented economic transition. In the beginning of the 1960s they were all low-income countries. Rapid and sustained economic growth and equal income distribution provided for by intelligent industrial policy, with some state intervention turned them into some of the world’s richest countries by the end of the century. 

In this article we will present the decisive economic and political factors in each of four tigers’ trajectory, and what they teach us about economic development.  

Evolution of Real GDP per capita in
all four Asian Tigers

Hong Kong’s Positive Non-interventionism 

         The city of Honk Kong was a British protectorate until 1997. Thus, its economic development in the 20th century was made under colonial rule. The economy was devastated after the Japanese occupation in WWII and the embargo from China during the Korean War. Nevertheless, it was able to produce an industrial take-off in the 1950s. The reasons for this take-off are twofold: first, the city benefited from capital and know-how brought from refugees from communist China; secondly, the colonial authorities opted for a liberal approach to policymaking. 

Sir John Cowperthwaite (1915-2006), Financial Secretary of Hong Kong (1961-1971)

The authorities, headed by Sir John Cowperthwaite (financial minister from 1951 to 1971), chose a laissez-faire policy, with openness to trade and to capital flows, low taxes, balanced budgets and the creation of the necessary institutional conditions for agents to operate in free, competitive markets. At the same time, the government intervened in the supply of public goods, strong and efficient regulation, and some welfare measures such as supply of housing. 

         These institutional conditions provided a framework for a rapid economic growth in the 1950s through the 1970s that was heavily based on industry. Structural changes were brought by China’s relative openness after Deng Xiaoping’s reforms. From the 1970s onwards Hong Kong’s economy moved from an industrial economy to an economy based on trade and value-added services, with a particular emphasis on financial services. 

         Today Hong Kong is one of the technological, financial, and trading centers in the world. Its economic results are sound and believed to continue to be so in the future. After the 1997 handover, it has become more economic integrated with China. However, the economic freedom and progress coexisted with lack of democracy and basic freedoms both during Britain’s rule and today. 

Singapore: Growth without Freedom 

         The city of Singapore gained its independence from Britain in 1963 and it seceded from Malaysia in 1965. At the time it was an underdeveloped city, with most of its inhabitants living in poverty while unemployment soared. Furthermore, it was a small state lacking natural resources, and basic economic and well-being infrastructure. 

         Inspired by the example of Israel, the government of Singapore tried to reap gains from trade and globalization to develop its economy. The government embarked on a set of policies designed to attract foreign direct investment and develop and liberalize trade in the region. Taxes were low, incentives given to investors and the rule of law was strictly enforced. In a couple of years most production units were owned by foreign investors, particularly American and Japanese ones. In the 1960s and 1970s, the country’s GDP grew at an annual double-digit rate. To industrial economic dynamism Singapore created was further enhanced with investment in education, particularly on technical skills. 

      

 Lee Kuan Yew (1923-2015), Prime Minister of Singapore (1959-1990)

   Singapore produced real structural reforms that created a resilient economy that dealt with relatively ease with the Asian Financial Crisis of 1997-98, the Dot-Com bubble and the 2008 Crisis. Today the city-state is one of the world’s trading and financial services centers, with many exporting high-tech industries. Furthermore, it shows many good results in quality-of-life indicators. 

         However, development came at a cost. The reforms were made by a strong government, under the leadership of the People’s Action Party since the late-1950s. Particularly, the reforms are associated with the person of Lee Kuan Yew, prime minister from 1959 to 1990. The business-friendly measures were coupled with a strong authoritarian government that constantly curtailed individual freedoms. Prosperity came at the cost of democracy, which is not the most desirable model to emulate. 

Taiwan: an active government 

Taiwan became an independent country after the Chinese Civil War, which opposed nationalists and communists. As the communist regime of Mao Tse-tung was implemented, the Chinese business elite was forced to flee to Taiwan, bringing capital and economic power to the island.  

The miracle of Taiwan’s economic growth was only possible due to an active posture of the government, which encouraged enterprising and development of the economy, providing several incentives.  

The plan for this growth consisted of transforming an economy based on agriculture to manufacturers, namely in the textile industry, modernizing the stages of production and trying to make it self-sufficient. The support of the government was fundamental since it supported the investment and capital acquired. This plan proved to be a huge success, as it drove Taiwan’s economy, shifting from the primary sector to the services sector, increasing exports and attracting investors.  

Another factor to consider in this process was that the labour force was extensive and very cheap, as the degree of education was not very high in most of the population, lowering the costs of production and allowing an establishment in the world’s market with competitive prices. Besides that, Taiwan also invested in the consumption and production of electronics, namely in integrated circuits. As the know-how and quality of the products increased, it boosted Taiwan’s economy, receiving plenty of foreign capital and exporting most of the production.  

South Korea: an exemplary case of diverging paths 

South Korea’s case is interesting, because, unlike the other three nations, it is noticeably larger and borders one of the worst cases of regime failure – North Korea. 

General Park Chung-hee (1917-1979), ruler of South Korea (1963-1979)

The Korean peninsula was home to a mostly agrarian society prior to World War II, making it one of the poorest in Asia. With the end of the world war, Cold War followed, and the Korean war broke out in full force, pitting the communist forces of the North (backed by China and the Soviet Union) against the US-led troops in the South. This was a defining moment in the Korean economy, leading to a coup by South Korea general Park Chung-hee in 1961. Chung-hee was a de facto dictator; however, the country flourished with him spearheading efforts to transition from an agrarian to industrial economy. His iron-fisted rule ensured controlled growth in the early 1960s. A lot of South Korea’s early prosperity stems from foreign aid provided by the United States – the chaebols, family-ran corporations, the backbone of the Korean economy, benefited greatly from these donations, in addition to tax breaks and easy financing. This period, between the 1960s to the 1970s, led to the consolidation of household names, such as Samsung, LG, and Hyundai. 

During the Asian Tigers growth period, South Korea’s GDP grew at an exceptional average of 8% per year – one of the fastest in Asia. Contrary to its neighbor to the north, South Korea adopted an export-heavy economy, which contributed to this growth as the West turned to Asia for its industrial and electronic goods. South Korea also had a booming steel industry, with some of the largest shipbuilding yards in the world. 

Conclusion 

The ascension of the Asian Tigers would shape our world, changing the dynamics of the worlds’ economy and the balance of power in South-East Asia. 

There were differences, for instance Hong-Kong adopted a policy of laissez-faire, with a very reduced intervention from the government, unlike Taiwan, Singapore, and South Korea where that entity played a major role, controlling the reshape the economy. Despite the variety of measures and different approaches, the ultimate result was an astonishing economic growth. 

This series of economic growth is an example to follow, as they show how, with the right measures, adapted to each situation, economies can flourish in a sustainable way.  


Sources: 

American Economic Association; BBC; Berkeley Economic Review; Borgen Magazine; Corporate Finance Institute; CNN; Economic History Association; E-International Relations; Food Research Institute Studies; Geographical Association; Ichiro Sugimoto; Investopedia; International Development Society – King’s College London; Journal of Comparative Economics; Kellogg Institue; MacroTrends; Montreal Economic Institue; St. Louis FED; Taiwan Today; The China Quarterly; The Economist; ThoughtCo; VoxEU; Wikipedia; WorldAtlas; World Bank; ZBW. 


Team

Rui Ramalhão

Guilherme Barroca

Mariana Gomes


Crisis after crisis, a short story of Argentina’s economy

Reading time: 7 minutes

Argentina seems to be constantly in a crisis and COVID-19 has not improved that record. Nonetheless, the untapped potential of the country remains there.

There are many countries which owe their success to their abundance of natural resources or geographic characteristics. However, there are also many which, despite all their natural fortunes, seem to be unable to fulfil their potential. There should not be a lot of countries embodying this reality as well as Argentina. The country is blessed with hundreds of thousands of square miles of extraordinarily fertile lands, as well as oil and natural gas reserves. Besides this, the country also has sizeable mining reserves of copper, aluminium, zinc and lithium. There is an old saying amongst economists that “throughout history, there have been only four kinds of economies in the world: advanced, developing, Japan and Argentina”, and, although Japan is no longer the bustling economy it once was, the South American country still remains very much economically unstable.

Argentina’s Belle Époque

Figure 1 – Streets of Buenos Aires in the early 20th century

Albeit struggling, Argentina has not always been economically troubled. In fact, in the late 19th and early 20th centuries the country was quite prosperous. This period was an era of rapid economic growth with large inflows of capital and labour from overseas, as a result of the expansion of the agricultural frontier, fueled by a surge in the world demand for commodities, particularly, cattle meat. This led to the country entering the 20th century as one of the wealthiest places on Earth. In 1913, the country’s GDP per capita was larger than France or Germany and was almost as large as that of Canada. However, it must be said it was also a very unequal society.

A story of economic instability

In spite of the expansion, as it often happens with commodity dependent economies, the boom was not to last and, by 1913, fortunes were already changing, starting with a major downturn that emerged in the London capital market and that spilled over to Argentina. The next year, WWI started, greatly constraining capital and goods markets, leading to a major recession.

Some years later, in 1929, the world was hit by the Great Depression, which led to further instability in external markets. Surprisingly, though, it was a shock that had a relatively mild effect on Argentina, when compared to the US, with unemployment never going above 10%. From 1929 to 1932, the country’s real domestic output “only” fell by 14% and, by 1935, it had already surpassed its 1929 level. Nonetheless, the Great Depression has ultimately led to a halt in the country’s relative prosperity, as it culminated in a military junta taking power in 1930, which would be a recurring theme throughout the 20th century. Throughout the 1930s and WWII, the economy would continue to be sluggish.

This increased instability eventually resulted in Juan Perón – a military general whose ideas still influence Argentinian politics to this day – taking power in 1946. His tenure was marked by flirtations with fascism, combined with the idea of self-reliance and import substitution of industrial goods. Nevertheless, even though the economy continued to grow, this growth was slower than that overall registered across the world and the quality of life of the average population declined. In the end, the regime lost popularity and was eventually overthrown.

“Instability” is the word that best describes the rest of the 20th century for Argentina. Throughout this time period, the country experienced constant upheaval, with weak democratic governments and military juntas being overthrown as quickly as they would rise. Needless to say, the country entered in a period of stagnation, only made worse by recurring inflation crises.

Troubles with inflation led Argentina to adopt a fixed exchange regime with a peg to the US dollar in 1992, which was accompanied by increased openness to trade and market reforms. For a short period of time, things seemed to be heading in the right direction, since the peg helped the country stabilize prices and get rid of high inflation, with large capital inflows following.

Unfortunately, the 90s also saw major recessions in Latin American economies that negatively impacted Argentina. Eventually, the country would find itself forced to drop its peg in 2001, leading, once again, to high inflation and to the worst economic crisis in the country’s history. GDP fell by nearly 20% in 4 years, unemployment reached 25%, the peso depreciated by 70% and the government defaulted on its debt. Savings of entire working-lives were wiped out, contributing to a dollarization that is still largely present.

Figure 2 – GDP per capita of Argentina as percentage of US GDP per capita. In the early 20th century, Argentina was close to US levels of GDP per capita, but since then it has only strained further away from the North American nation.

Fortunately, Argentina did recover from 2003 onwards, thanks to expansionary policies and, especially, to a surge in commodity exports and prices, with the economy nearly doubling by 2011. The following years were not as fortunate, though, and, by 2018, the government found itself asking for IMF intervention once more, as it had already done in 2001.

How is the Argentine economy currently doing?

With COVID-19 now impacting the economy as well, Argentina has struggled to recover. During 2020, the country suffered a new series of demand-side shocks, causing an already struggling economy to plummet, in one of the largest retractions in 2020 – GDP declined by 9,9%. The effects were also felt in the labor market, with nearly a third of the country’s workforce unemployed or that has given up on finding work. To counteract the impacts of the crisis, the Government implemented an emergency package, in order to protect the most vulnerable and support companies during lockdown.

Figure 3 – Inflation in Argentina throughout the past 25 years. Recent levels of inflation have been especially high, even surpassing the levels experienced following the break of its currency peg in 2001.

Meanwhile, as inflation nears 40% and its central bank is short on dollars, Argentina faces renewed pressures to devaluate its currency. Furthermore, the $30 billion bail-out that benefited the country in 2018 are part of the total of $44 billion in loans that the country owes to the International Monetary Fund and that President Alberto Fernández and his government are trying to renegotiate.

President Fernández has a chance to implement reforms to create opportunities for renewed investment, job creation and economic growth, but the delicate situation of Argentina implies extensive due diligence by investors to understand the country’s political risk dynamics and outlook.

What are the future preventive measures for the coming years?

As aforementioned, the risks associated with the political and economic outlooks have kept investors’ attentions out of Argentina.  Fernandez’s only chance to return to meaningful growth in the medium-term is to provide investors, both domestic and foreign, with legal and macroeconomic assurance.

One of the key elements to do so is a successful renegotiation of the IMF bailout in 2021. This should set a clear path for the reduction of the fiscal deficit and the gradual removal of major operating constraints on businesses. Among those are liberating the ARS/USD exchange rate, as well as capital and import controls, even if slowly. Deeper changes involving significant tax and labor reforms to improve doing business in the country should also be considered.

Final Remarks

With a history of political and economic instability, Argentina faces, once again, a tumultuous period, as the effect of the pandemic spreads through the economy. But there might be some light at the end of the tunnel. Rising commodities prices may give Argentina some breathing room to survive the devastating effects of the pandemic crisis and the renegotiation of the IMF bailout may be the first step of a series of reforms in public and monetary policy which may bring back the prosperity once seen in early 20th century.


Sources: Bloomberg, El País, Forbes, IMF, History Channel, Wikipedia, World Bank

Rodolfo Carrasquinho

João Diogo Correia

Raquel Novo

US Prision

Reading time: 6 minutes

The US has the largest prison population in the world, as well as the largest prison population per capita. The incarceration rate in the US is six times higher than the EU average, while the sentence times are on average three times longer than in the EU.

These statistics came as a consequence of decades of policies and has increased the disparities between the United States and other economically developed countries. According to academic and activist Angela Davis, as mass incarceration has increased, the prison system has shifted from being about criminality towards economic factors.

US’s mass incarceration problem

In June 1971, President Nixon declared officially a “War on Drugs”, stating that drug abuse was the US’ “public enemy number one”. This followed a sharp increase in recreational drug use in the 1960s and marked a key moment in the development of the US Prison System.  Nixon increased the funding of drug-control agencies and proposed strict sentances for drug crimes.

The critical moment, however, came during Reagan’s second term, where a bi-partisan Congress approved the Anti-Drug Abuse Act of 1986. This law substantially increased the number of drug offenses with mandatory minimum sentences. It also penalized disproportionately drugs that were typically associated with the black community, such as crack cocaine, as compared to drugs that were typically associated with white communities such as powder cocaine. The act, for example, mandated a minimum sentence of 5 years without parole for the possession of 5 grams of crack, while the same sentence would only be applied for 500 grams of powdered cocaine.

As expected, following the approval of this Act, there was a sharp increase in drug offense imprisonment, as well as an increase in the racial disproportion of said arrestees. The number of incarcerations for nonviolent drug offenses increased from approximately 50.000 in 1980, to 400.000 in 1997.

Comparison between systems

The European Prison rules are a set of legally non-binding standards drawn up by the Council of Europe. The members of the Council include all countries in continental Europe, except Belarus and Kosovo, and countries are expected to comply with its rules.

The main difference between the American Prison System and the largest European Prison Systems is their general goal. Germany’s Prison Act states, for example, that “the sole aim of incarceration is to enable prisoners to lead a life of social responsibility free of crime upon release”, while the American Prison System focuses on punishing inmates. According to a report commissioned by the U.S. Department of Justice, the prison system has responded to escalating crime rates by enacting highly punitive policies and laws. This has led to great disparity in incarceration rates, the European average in 2018 was 103,2 prisoners per 100.000 people, whereas in the US this number reached 655 prisoners per 100.000 in 2019.

In Europe, prisoners keep their right to vote, are allowed to receive welfare benefits and in some instances get the chance to spend some time away from prison (not uncommon in the Netherlands for prisoners to go home for the weekends). Family visits in the US happen in guarded visiting rooms, the prisoners generally forfeit their right to vote and (in some states) are not allowed to serve as juries.

In the US, little consideration is given to minor offenders, with some States trialling teenagers as young as 16 as adults. In some European countries, those under 21 are trialed in youth courts as to consider developing morals and psychologically or if crimes are considered “typically juvenile”.

Figure 1: Aftermath of a prison riot in California in 2009

The Economics of the American Prison System

The total annual expenditure of the US government on prisons and jails amounts to $84.6 billion, and, after adjusting for inflation, has quadrupled since 1982. There are therefore people with significant economic interests in maintaining mass incarceration. CoreCivic, the US’ second largest private corrections company, is traded at the NYSE and is a component of the S&P600. From 1999 to 2010, CoreCivic spent on average $1.4 million per year on lobbying on a federal and state level. An August 2016 report by the U.S. Department of Justice asserts that privately operated federal facilities are less safe and more punitive than other federal prisons.

Recently, these companies have come under fire and are even facing lawsuits as allegations of forced and underpaid labor came to light. These reports allege that these companies are exploiting people who are in vulnerable situations to reap profits. The hourly pay for inmates working in the US can vary anywhere from $0.09 to $4.90, depending on the State, while four States do not pay inmates any form of salary. This only decreases their chances of success once they are released, as they have little to no savings, and oftentimes are ineligible for government benefit programs like welfare and food stamps.

Former inmates also face significant difficulties when trying to reenter the job market, as they face unemployment rates approximately five times higher than the general US population. This employer discrimination also affects disproportionately people of color and women. Formerly incarcerated black women face hardships finding employment, as their unemployment rate is almost seven times higher, at 43,6%, than the unemployment rate of their general population peers. The racial disproportionality regarding the incarcerated population, as well as the disadvantages they face once out of the Prison System will perpetuates racial inequalities, affecting particularly minority communities.

Figure 2: Prisoners at the Louisiana State Penitentiary working at a farm

The consequences of mass incarceration

The consequences of mass incarceration go far beyond the financial impact, they affect individuals and communities all over the US. A prison sentence oftentimes has the opposite effect of what it is intended to achieve. Instead of being rehabilitated and ready to integrate society, many former prisoners fall into a cycle of crime after their release, due to either being pulled into gang activity within the prison walls, or turning to illegal activities due to financial need. Mandatory sentencing has doomed the lives of people charged with low-level offenses, punishing them for the rest of their lives.

According to a research conducted by the Congressional Research Service, on average, over a five-year period, 76,6% of released inmates will return to prison.

The effect on communities is also extensive, affecting primarily minority communities as these are the ones with the highest incarceration rates, even though they have similar drug usage and drug trafficking rates as white communities. Residents of neighborhoods with high incarceration rates face a disproportionate level of stress, due to a combination of disrupted family and social networks, as well as increased rates of crime and infectious diseases such as HIV. Furthermore, studies have shown that this also takes a toll on mental health, as one study concluded that “The effect of neighborhood-level incarceration on mental health is similar for individuals with and without a history of incarceration.”.

Mass incarceration has had a negative impact on individuals and society, the policy choices of the last 50 years have helped perpetuate racial inequalities in minority communities. One possible way to overcome this issue, would be to transform the American Prison System from a punitive one, into a rehabilitative Prison System, as seen throughout the EU. The question that remains is, when will American lawmakers tackle this issue, ensuring the American Prison System becomes an efficient tool for rehabilitating felons, making them ready to integrate society.


Sources: American Civil Liberties Union, History Channel, Reuters, NPR, sentencingproject.org

Afonso Monteiro

Hugo Canau

Christian Weber

Hidden Risk– A Behavioral Economics perspective on gun control

When we think of behavioral economics, we usually tend to relate it with producer and consumer decisions and the construction of economic models to better understand decision-making. However, its applications goes way beyond that. Throughout this article, we will try to explain how behavioral science can help fight a major issue of modern society: Gun control.

According to the most recent National Firearms Survey, there are approximately 4.6 million children in the United States that live in homes with at least one loaded and unlocked firearm. Despite the strong recommendation of the American Academy of Pediatrics for people to store it safely away from children, studies find that one in three US homes with a child under 18 years old has a firearm, of which 43% are unlocked and loaded. Thus, it is not surprising that firearm-related injury was the leading cause of deaths among children and adolescents in 2017, with the odds of a child being killed by a firearm being 36 times higher in the US than in any other high-income country.

Firearm-related injury was the leading cause of deaths among children and adolescents in 2017

In this article, we will apply behavioral economic theory to identify some of the cognitive biases that may explain the motives that lead millions of people in the US to purchase guns and, more precisely, that lead millions of parents to store firearms within their children reach. The main advantage of analyzing this critical issue is to understand both sides of the debate as to solve some ambiguities about the best way to minimize fear while maximizing personal and public safety. Moreover, it is important to educate legislators about the behavioral economics’ principles that may impact decision-making, so that they can implement strategies to enhance safer firearm storage practices and contribute to injury prevention efforts.

So, how can we explain the overpowering need to own guns in the U.S? Would you ever own a gun? For what purpose? Most people would answer that it is simply a way to protect oneself from someone else that owns a gun. However, this will inevitably result in an economics problem called the Tragedy of the Commons. It means that the individual has an incentive to consume a resource but at the expense of everyone else. One classic example is what would happen if every shepherd allowed their sheep to graze in a common area. If everyone thought that way, then it would result in harmful over consumption, essentially being detrimental to everyone.

To have an even better picture, we can use the study tool Game Theory in order to further analyze this issue. Hypothetically, imagine you were in an ideal world where the rest of the society was gun free, and everyone would feel relatively safe. Now, imagine that your friend has the idea of owning a gun because that will make him feel even safer. His individual payoff will increase but he is not taking into consideration the effect that this will have on others, namely that he is armed, and the rest is not. Hence, he is better off than the rest, leaving others worse off in comparison. In this particular case, it is obvious that the society as a whole is better off when no one owns a gun. However, from the moment that one single individual makes the decision of buying a weapon, everyone else feels that they could now benefit from deviating from the optimal point to society (no guns), leading to a snowball effect, where at the worst-case scenario everyone owns a gun.

Now, let’s imagine that you’re an entrepreneur who despite all the business knowledge, past good grades and amazing ideas, your past 6 attempts at creating a business restaurant have flopped. However, in the seventh attempt you feel it in your heart that this will be the one despite the endless advice to not pursue and stubbornness to admit defeat. What do you know? You failed for the seventh time. So, what happened? This is one of the various scenarios in which some people exhibit the optimism bias.

The optimism bias refers to “our tendency to overestimate our likelihood of experiencing positive events and underestimate our likelihood of experiencing negative effects.” This of course can be quite dangerous depending on the circumstances. Once again, this is one of the many biases that can make us irrational and ignore important information that can either make or break our outcome.

In terms of gun usage, optimism bias can shed light on many of the decisions and thoughts that gun owners make. For example, too much optimism can lead a gun owner to think that despite the various gun related crimes and even domestic accidents, being in those said dangers will never happen to them despite worryingly increasing every day.

In general, we have the tendency to underestimate our likelyhood of experiencing negative effects

Moreover, with the increasing mass shootings and gun violence in the United States, gun owners have become more aware of possible dangers and want to be protected. This leads them to unlocking their firearm and maintaining it loaded for the sake of individual safety and their family, ignoring the threat it may impose on the household members, especially children. So, why does this happen? Behavioral economics can explain this behavior as availability heuristic bias.  This can be defined as the propensity people might have to place more significance on events that are more easily remembered than ones that become harder to imagine. No parent wants to hurt their child but rather protect them, which unfortunately leads to accidents.

Present bias can also be related to these accidents as people have the tendency to give greater importance to events that are closer to the present rather than ones in the future. Individuals might view the immediate risk of gun accidents with children as lower than potential future benefits (protecting them from intruders), and this leads to the mistaken belief about possible advantages in the future against what something may cost today.

In this article we hope to raise awareness to a major issue of modern society, and how alternative methods such as behavioral economics can help explain this many times misinterpreted phenomenon.
Having this said, we also must recognize that firearms have been and will continue to be part of our society, as they have been around for over 650 years and, as of now, there are over 875 million guns in the world.
This begs the question, if firearms are staying, what must change? The simple answer is the usage of those firearms; however, this is easier said than done and first we must understand why we don’t use guns properly.
Throughout this article we try to present the multiple behavioral biases that shed light on the many times perceived “irrational” usage of guns and with this, give the first step to change behaviors: understand what we do and why we do it.


Madalena Andrade

Daniel Calado

Afonso Serrano








Is the Real Estate Market too heated?

Reading time: 6 minutes

Recently, the housing market in the US has been experiencing a major boom quite unlike anything that has been felt in the past 14 years.

According to the National Association of Realtors, demand has been skyrocketing for the past months, with prices hitting all-time highs: median sale prices close to $350,000 and asking prices even higher. This price-frenzy is in large part due to supply being unable to quickly catch up to the unsurmountable demand, with almost 50% of offers under contract just one week after listing. For all involved, this expansion of the real estate business after such a long-lasting stagnation is indeed cause for celebration; however, for those whose memory does not falter, this scenario may seem reminiscent of what the American economy was experiencing prior to the housing bubble burst of mid 2000s that paved the way to the 2008 financial crisis. Thus, this poses the question: are those concerns valid and if so, should we worry that a new crash may be on its way?

What forces have been triggering this spike?

Numerous reasons have been behind the current real estate rally. As we have mentioned, demand has been pressuring a relatively distressed supply in the past months, leading to an increase in prices that is far beyond the levels one would expected in an economic crisis of this dimension.

Starting on the demand side of the equation, experts point out to three different reasons driving this demand mania.

First, by decreasing interest rates as a way to ensure liquidity during 2020, the FED forced mortgage rates to fell considerably during this period, reaching a record low of 2.65% in 2021 (from 3.73% in February 2020). Now, a 1 pp decrease might sound small for non-homebuyers. However, imagine a homebuyer buying a $300.000 house just before the crisis began. In this situation, he would, most likely, be paying up close to $499.000 over a 30-year mortgage agreement. Now, if that buyer had done the same deal in January 2021, he would be paying around $436.000, a discount of more than $60.000 (or 12.5%). This effect has incentivized buyers to look for more expensive houses than before, as it pushed them into the market to lock these mortgage rates before the FED tightens its policies.

Figure 1: 30-year Mortgage Rates in 2020. Source: Freddie Mac

Second, as Millenials are entering the housing market more fearlessly, the largest generation on Earth is now dominating demand, as they are keen to either leave their parents’ or just quit rentals. According to the National Association of Realtors, the median age of first-time homebuyers is now 33, which turns out to be the median age of Millenials. Alongside this, despite some increase in unemployment levels, salaries and overall income were kept stable the past year, as loose fiscal and monetary policies helped mitigate losses in purchasing power.

Combine low interest rates policies with no decreases in disposable income, plus a generation looking to buy their first house, well… you just set up a buying frenzy.

Finally, this pricing boom couldn’t be made possible without a supply shortage. In fact, after several construction companies went bankrupt during the Great Recession, fewer homes were built in the 2010s than in any decade going back to the 1960s. This sluggish construction activity has now been left out in the open in a market where home sellers are seeing double digit offers in the first 24 hours of bidding.

Moreover, with the pandemic causing some uncertainty regarding future paychecks, homeowners have had some reservations regarding the possibility of selling their current house and move to a more expensive one. Besides this, with a contagious disease spreading as fast as COVID-19, people do not want strangers traipsing through their living areas during open houses.

Finally, one recent element causing prices to rise is actually related to its intrinsic cost. Recent commodities shortages have been rising its prices significantly, ultimately increasing building prices and delaying orders. Lumber has been the most recent commodity on the spotlight, with its 3-fold growth in the past year raising housing cost by tens of dollars.

Figure 2: Lumber prices skyrocketed in the past year. Source: Refinitiv

Is history repeating itself?

This resurgence of demand in US real estate and the booming prices currently being practiced have led many to fear that a new crash similar to that of 2007 may be on its way. However, all evidence points out that this current boom is quite the inverse to that of mid 2000s.

For once, the current boom is mostly motivated by an excess of demand over the supply (the reason why prices are being pushed up), whereas prior to the sup-prime crisis the opposite was verified: the market was over-flooding with houses and there were not enough high-rating buyers for them, which led to an opening of the market to low creditworthy buyers (which inevitably was at the root of the problem). Currently, the market is still experiencing a shortage of houses (definitely not enough to meet demand), as construction is still catching up to the slowdown that was prompted by the pandemic.

Moreover, nowadays, the type of buyers is also quite different from that of the previous boom. They are of a higher credit rating and much more willing to put on their own money to buy their house. As a matter of fact, real estate companies are reporting that a lesser amount of the houses is being paid with resort to loans, as customers put more cash up front. This poses a great contrast to the low-credit-rating buyers that dominated the housing market in mid-2000s, most of whom could not afford the houses they were signing contracts to acquire.

Finally, lending rules are much more restrictive, carefully attributing loans only to those with enough credibility to ensure future payments. Back then, risky mortgages were provided to households with a high default risk who had no means of paying for them and only small down payments were required most of the times. Therefore, prior to the financial crisis, the so-called NINJA loans (no income, no jobs, no assets) were the rule, which ended up being the downfall of the market.

All things considered, current circumstances are much different from what was observable in the past.

Is There a Bubble Though? And What Does the Future Hold?

Housing experts claim that the housing market is not yet in a bubble. This is despite home prices being soaring at historical highs across the country. However, some claim that a small price correction can take place.

On the one hand, while the housing market is composed by low inventories, high demand and a risk-averse lending environment, extreme spikes in home prices could result in some prices rolling back soon. Subsequently, in the future, these peaks in prices can disappear as people will return to their normal activities

The future will depend on the pace of new construction, the strength of the economy, the quantity of homeowners willing to sell their houses and overall demand in the market.

When it comes to buyers, people who could afford a home pre-COVID-19, will be, most likely, in good financial positions to buy a home after Covid, as the majority of this people is stable and financially comfortable.

On the contrary, people who lost their job or received low wages, even before the pandemic, could not buy houses, as they usually rent the places they lived in. So, unless there is a recession in the future, the level of demand will, most likely, not change anytime soon, causing housing prices not to decrease as well.


Sources: Better Homes & Gardens, The Wall Street Journal, VOX

Francisco Nunes

Alexandre Bentes

Inês Lindoso

Healthcare Without Borders: Poland’s Abortion Ban and the EU 

Reading time: 6 minutes

On the 22nd of October 2020, the Constitutional Tribunal of Poland ruled that the present law authorising abortions for malformed foetuses was unconstitutional, banning most abortions performed in the country. Poland already had some of the harshest restrictions on abortion in Europe. This has led Polish women to take advantage of the European Union’s freedom of movement and look for safe abortions in other member states. 

Abortion and Conservatism in Poland 

Formalised by the law of 1956, abortion was legal in Poland during the period of state-socialism, when pregnancy termination was possible based on social grounds. Despite the many protests organised by several women’s organisations, new legislation was adopted in 1993 that severely restricted the possibility of having a legal abortion. In particular, according to Article 4a of the new law, termination of pregnancy is possible only in three specific circumstances: 

1. If the pregnancy constitutes a threat to the life or health of the mother. 

2. If the pre-natal examination or other medical reasons point to a high probability of severe and irreversible damage to the foetus or of an incurable life-threatening disease of the child. 

3. If there is a confirmed suspicion that the pregnancy is a result of a criminal act, the termination of pregnancy in this case is allowed, if the woman is less than 12 weeks pregnant. 

Performing an illegal abortion is a criminal offence subject to a fine and/or 10 years imprisonment. 

However, more recently, the governing Law and Justice party has tried to ban abortion as a whole. In March and April of 2016, an initiative to completely ban abortion led to a series of street protests and the mobilisation of women’s organisations. The initiative was eventually voted down. 

Access to contraceptives in Poland is also quite restricted, as in most cases no refunds are available from the National Health Fund and the costs of contraceptives need to be covered privately. Consequently, the use of contraceptives in Poland is one of the lowest in Europe. A recent survey shows that methods such as coitus interruptus or the “natural method” (the so-called “marriage calendar”), which carry no cost, are popular, while modern contraception methods, such as intrauterine devices (IUD), have little use. 

Until 2015, emergency contraception was only available with an adequate prescription. In February 2015, the law was amended so that any person at least 15 years old was free to purchase the pill in a pharmacy, without the need of a prescription. This law was reversed by the current government in March 2016, and again emergency contraception is only available after a prescription. Additionally, pharmacists started to use the so-called “conscience clause” which allows them to refuse sell of contraception in their pharmacies.  

In 2019, a group of MPs from the Law and Justice party referred the abortion law, then in force, to the Constitutional Tribunal. The Tribunal is mostly composed of judges nominated by Law and Justice, after a series of moves by the party to have more control over the judiciary. 

In October 2020, the Constitutional Tribunal ruling banned abortion on the grounds of severe health defects of the foetus – which accounted for 98% of all legal terminations in Poland in 2019. One opinion poll suggested 59% of Poles disagreed with the ruling. Abortion is now only possible when a mother’s health is at risk, or in cases of criminal acts. 

With these restrictions, Polish women are turning to the freedom of movement in the European Union – which means that abortions available in one member state are available to all citizens of the EU. A situation that is not new. 

Freedom of Movement and Medical Tourism 

Until 2018, Ireland also had restrictive laws on abortion. The Eighth Amendment of the Constitution Act 1983 equated the unborn foetus’ life to that of its mother and allowed for abortion only in circumstances where the life of a pregnant woman was at risk. 

Abortion law in Ireland received worldwide attention resulting from the death of Savita Halappanavar, who had been denied an abortion while suffering from a septic miscarriage. This case resulted in the Protection of Life During Pregnancy Act of 2013, which allowed for abortion when the pregnancy endangers a woman’s life, including through the risk of suicide. 

In 2018, this amendment was replaced by the Health Act 2018, which permitted abortion in the first 12 weeks of pregnancy and later in cases of risk to the woman’s life or fatal malformations of the foetus. Abortion services commenced on 1 January 2019. 

Before the Health Act of 2018, women in Ireland seeking abortions often found them abroad, typically in Britain. In 1992, the Attorney General sought to prevent a 13-year-old, who had become pregnant as a result of rape, from obtaining an abortion in England. The Irish Supreme Court ruled in favour of the girl. This case led to the thirteenth and fourteenth amendments to the Irish constitution, legalising women travelling abroad for abortions. 

After the passage of the thirteenth amendment in 1992, the practice became more common. In 2001, an estimated 7.000 women travelled abroad to obtain an abortion. Statistics showed that 4.149 Irish women had abortions in Britain in 2011, and 3.265 did so in 2016. A study found that in 2014 a total of 5.521 women gave Irish addresses to English and Welsh clinics that provided abortion services. In some cases, women travelling do it with the assistance of the Abortion Support Network – a UK-based charity that helps women in countries such as Poland, Malta and (formerly) Ireland to obtain abortions abroad. 

Abortion is also illegal in Malta, where the practice is a criminal offence punishable with 18 months to three years in prison. It is currently the only country in the European Union to ban abortion in all cases. A key argument against the decriminalization of abortion is to preserve Maltese national identity as rooted in conservative politics, Catholic morality, and family values. 

It is estimated that 300-400 women a year travel out of Malta to perform abortions, mostly to the UK (around 60). As a result of the ongoing pandemic and closing of borders, this has become impossible. The Abortion Support Network saw a dramatic increase in calls to its hotline when borders closed in March of last year. 

Abortion Laws in Europe 

Currently, 24 EU member states allow abortion on request – everyone but Poland, Malta, and Finland. In Finland, a woman can have an abortion with a note from two doctors and a social or financial reason to justify her decision. As mentioned, Malta is the only EU country to prohibit abortion in any case. Poland now has, after Malta, the most restrictive abortion law of any EU member state. 

The European Union follows a principle of subsidiarity as laid down in article 5 of the Treaty of the European Union – meaning that decisions are the responsibility of the member states if the intervention of the EU is not necessary. Additionally, under the principle of proportionality (article 5 as well), the EU must only act when it is necessary to achieve the objectives of the treaties. In 2014, both the European Commission and the EU Parliament stated that Member States are free to choose their own abortion legislation since there exists no right to abortion under the treaties of the EU and other international law. Having this in mind, it seems unlikely that the EU will find legal grounds, or even motivation, to impose an EU abortion law without amending the treaties. 

Future 

With the tightening of abortion restrictions in Poland, and the continued growth of conservative and populist movements in the country, Polish women seeking an abortion will probably have no option in the near future but to travel abroad, by their own means or with the support of organisations. This provides a daunting preview into the tightening of other civil liberties in Poland and in other countries. 


Sources

The Economist, Amnesty International UK, ABC News & The Guardian 


Team

Afonso Monteiro

Hugo Canau

João Sande e Castro

Manuel Barbosa


The disproportionate effects of climate change

Reading time: 6 minutes

Nowadays, climate change is more and more discussed to a point where one might think that he/she already knows everything there is to know about it. However, there are still many aspects that we are not aware of. For example, many do not know that pollution itself, be it air, land, or water, causes more than 9 million premature deaths, which put into perspective represents almost 3 times more than deaths caused by AIDS, tuberculosis and malaria all together. Therefore, although climate change and everything that can be included in this topic is very much discussed, to this day, it continues to be a very present and important topic in our lives, and we, as  humanity, still have a long way to go. This article seeks to explore the disproportionate consequences of climate change in the developing world and the role that developed countries must take to help reduce the burden.   

But what is the developing countries’ contribution to climate change?  

Primarily, it is important to take a look at the global carbon emissions and realize that developing nations are responsible for 63% of it. Apart from the fact that China and India alone account for 28% of the global carbon emissions, which corresponds to almost 50% of the developing countries’ emissions, the value is still alarming. Asia, Latin America and Africa are the regions that contribute the most to current carbon emissions due to lack of technology and resources to fight pollution, as their economies are still growing, and this must be considered when deciding what policies and measures to be taken.

Figure 1– Annual total CO2 emissions, by world region  
 

The Paris Agreement indeed acknowledges that the efforts to reduce carbon emissions cannot be the same for developed and developing countries, allowing the less developed ones to emit more carbon until they reach a certain development level that enables them to stop relying on carbon-intensive industries. However, the World Resources Institute shows that it is possible to reduce annual emissions while growing the economy, and the key is to raise the use of renewable resources. This approach looks ideal as it combines decarbonisation with economic growth and poverty reduction, which must remain the priority. Yet, there are still significant barriers preventing developing countries from adopting renewable energies, as many struggle with poor governance, gaps in technical and financial expertise, and lack of resources. The need of implementing specific strategies and policies shaped to each country’s circumstances requires the expertise that only developed countries can provide, reinforcing the importance of a global coordination to shift economies away from carbon-intensive industries.  

The rebound of climate changes   

Besides being the ones that contribute the most to carbon emissions, developing countries are also disproportionately affected by the negative effects of global warming. Observing graph 1, it becomes clear that the developing world has the highest mean exposure to air pollution. According to the World Health Organization, around 98% of people in developing nations live in polluted air areas, while in developed countries the number decreases to 56%.  

Graph 1 – Mean annual exposure (in micrograms per cubic meter) to air pollution  

The vulnerability that defines the less developed countries ends up limiting their ability to prevent and respond to the impacts of climate change. Let’s consider the fast fashion industry to better understand this issue: as to avoid the bans of chemicals that most governments of developed countries set, multinational companies place most of their manufacturing processes in developing countries, where the dependency on the clothing industry does not allow governments to act as a way of prevention. Moreover, these countries are the least able to afford the consequences and it has been shown that climate change can reverse significant development gains.   

Furthermore, one of the main consequences of the high incidence of emissions in developing countries is the increasing number of climate refugees. Although it does not have an official recognition, the term climate refugee is often used to identify people who are forced to leave their homes because of climate change and global warming. It is also common to hear the term environmental refugee, which aggregates not only the effects of climate change, but also natural disasters that may force people to be displaced. The international organisation Red Cross estimates that the number of climate refugees is higher than the number of political refugees, and scientists predict that in 2050 the number of people leaving their homes due to the consequences of global warming might reach 200 million. Since most displaced people move to safer areas within the same country or near the borders, the burden will continue to fall onto the developing world. The scarce resources become even scarcer with the arrival of refugees, which may end up threatening the lives of millions of people.   

The sad reality  

However, as the gap widens between the wealthy and the poor, the unfortunate reality of developing nations is revealed: there is no infrastructure in place to fight climate change. Funds are mismanaged, resources are scarce, and governments have other priorities – feeding their present population, for example. Sadly, the burden of this fight is done through foreign aid.  

Foreign aid has been effective in the past in combating climate change and is an important tool for those most in need. In Africa, there have been repeated efforts to slow down the desertification of the Sahel, a land strip which divides hundreds of millions between the desert and fertile land. On the other hand of the spectrum, preventative measures have also been put in place, such as giving the native population more incentives to adopt more sophisticated farming methods rather than the slash-and-burn one, still used in many African villages today. Michael Hübler, professor at the Leibniz Universitat in Hannover, claims that, in the future, foreign aid will be divided in two branches: short-term emergency needs, and long-term development needs. He argues that foreign aid must be given in equal parts to both societal development and the preservation of the planet’s biodiversity, as only this will foster real growth in the far future.  

Figure 2 – Interdependent dimensions of future foreign aid  

Nevertheless, foreign aid can only last so long. Developed countries have limited amounts of resources that can be used to help other nations in need; developing economies must find a self-sustaining way of fighting climate change. In many cases, foreign help does not account for traditional solutions which have been reliable in the past. For example, in the Pacific Islands, rising sea levels have historically been fought through natural solutions, such as planting more mangroves, a small tree that is more readily sustained in poorer contexts. Foreign aid lacks this nuance. Looking at this from another perspective, as the threat of climate change looms over the world, developed countries will begin focusing retaliatory efforts on themselves rather than developing countries, hence why foreign aid will reach its end date in the near future.  

A change is in order   

It is not known whether humanity will overcome climate change, but the reality is clear: this is the most important issue facing the planet in the 21st century – and, sadly, none will be more affected than those living in developing nations. The consequences will be disastrous if not dealt properly, and we can expect millions of climate refugees flocking to major metropolises in the next 30 years. Poor nations must pollute to grow; developed nations did the same over one hundred years ago – but this is not sustainable. Foreign aid can only do so much to offer alternative methods of growth; sustainable growth may only be achieved in a clean manner by using natural methods, harkening to other times without factories and pollution. It may be hard, but it is possible. 


Sources: The World Bank, Unites Nations, Earth.Org, National Geographic, UNHCR – The UN Refugee Agency, The conversation  

Madalena Andrade

Guilherme Barroca