Investors call the end of the government-bond bull market (again)

It is the corporate-bond market they should worry about

FOR the umpteenth time in the past decade, a great turning-point has been declared in the government-bond market. Bond yields have risen across the world, including in China, where the yield on the ten-year bond has come close to 4% for the first time since 2014. The ten-year Treasury-bond yield, the most important benchmark, has risen from 2.05% in early September to 2.37%, though that is still below its level of early March (see chart).

Investors have been expecting bond yields to rise for a while. A survey by JPMorgan Chase found that a record 70% of its clients with speculative accounts had “short” positions in Treasury bonds—ie, betting that prices would fall and that yields would rise. Meanwhile a poll of global fund managers by Bank of America Merrill Lynch (BAML) in October found that a net 85% thought bonds overvalued. In addition, 82% of the managers expected short-term interest rates to rise over the next 12 months—something that tends to push bond yields higher.

In part, this reflects greater optimism about the global economy. For the first time since 2014, America has managed two consecutive quarters of annualised growth of 3% or more. Forecasts for European growth have also been revised higher. Commodity prices, including oil, have been rising since June, which may be a sign of improving demand.

The BAML survey found that, for the first time in six years, more managers believe in a “Goldilocks” economy (in which growth is strong and inflation is low) than in a “secular stagnation” outlook (in which both growth and inflation are below trend). If those views turn out to be correct, then it might be expected that bond yields would move a bit closer to more “normal” levels. Until the crisis of 2008, the ten-year Treasury-bond yield had been above 5% for most of the previous four decades.

Investors also expect that, eventually, some kind of fiscal stimulus will be passed in Washington, DC. Of the fund managers polled by BAML, 61% expect tax cuts in the first quarter of next year. Such a package may increase the deficit and induce more economic growth; both factors would push bond yields higher.

Another factor behind the upturn in yields is a shift in central-bank policy. The Federal Reserve has started to wind down its balance-sheet, by not reinvesting the proceeds when bonds mature. The European Central Bank will soon cut the amount of bonds it buys every month by half, to €30bn ($35bn). The private sector will have to absorb the bonds that central banks are no longer purchasing.

Whether this will trigger the long-prophesied collapse of the bull market in bonds is another matter. Globally, there are no signs of a sustained surge in inflation (see previous article).
PIMCO, a fund-management group, thinks that global economic conditions may now be “as good as it gets”. The momentum of growth may already have reached its peak.

Central banks also know that higher bond yields can act as a brake on economic growth. In G20 advanced economies, the combined debt of households, governments and the non-financial corporate sector has been rising steadily and stands at 260% of GDP. Every debt is also a creditor’s asset, but higher borrowing costs can create awkward adjustments; in America, for example, 30-year mortgage rates are around half a percentage point higher than they were a year ago. So the pace of tightening will be very slow. And if the economy shows any sign of wobbling, central banks will probably relent.

Perhaps the real area of worry should be the corporate-bond market. Low government-bond yields have pushed investors in search of a higher income into taking more risk. American mutual funds now own 30% of the high-yield bond market, up from less than 20% in 2008. The spread (extra interest rate over government bonds) on these riskier securities is close to its lowest level since before the financial crisis. BlackRock, another fund-management group, says there is “a more favourable environment for issuers at the expense of lenders”, especially as the quality of the covenants protecting lenders has been deteriorating.

With the rate of bond defaults falling, and the global economy doing well, investors probably feel there is little to worry about. But there is a problem: the corporate-bond market is less liquid than it was before 2007, as banks have pulled back from their market-making roles.

Investors have found it easy to get into the market in search of higher yields. When the time comes, they will find it much more difficult to get out.

China’s central bank injects $47bn into financial system

Largest intervention in almost a year sends bond yields down from 3-year high

Don Weinland in Hong Kong and Yuan Yang in Beijing

China’s central bank injected $47bn into its financial system, its largest intervention in nearly a year, in an effort to calm investor fears that Beijing’s crackdown on debt-fuelled growth would put a brake on the country’s rapid expansion.

Yields on China’s benchmark 10-year sovereign bond had risen above 4 per cent this week, a level not seen since 2014, following a sell-off that began following last month’s Communist party Congress, where the outgoing People’s Bank of China chief warned of the risks from excessive debt and speculative investment.

Although Thursday’s Rmb310bn injection saw the yield eased to 3.98 per cent from an intraday day peak of 4.015 per cent, analysts warned the PBoC had no clear target and that yields could rise beyond 4 per cent again without further easing.

“They don’t want the market to panic but I don’t think they have a set target,” said Zhou Hao, senior emerging markets economist at Commerzbank in Singapore.

Emerging markets have been suffering a rough patch as investors have retrenched following Venezuela’s recent bond default, Saudi Arabia’s threatening war against Iran and continued political turbulence in Turkey. The jitters have also resulted in price swings for commodities such as metals and oil.

But China has come under particular scrutiny after recent remarks by policymakers that they are determined to crack down on easy credit, which many analysts believe has created bubbles and oversupply throughout the economy.

Loose monetary policy in China has helped keep bond yields artificially low as central bank liquidity — often in the form of stimulus intended to support the economy — has flowed into financial markets.

But policymakers are concerned the easy credit has masked concerns over the build-up of bad debt and a slowdown in China’s economy. The PBoC’s recent decision to hold off on adding liquidity to the system has led to a correction in Chinese markets as those fears are priced in.

“There should be a credit-risk premium but yields have been distorted by all the liquidity,” said Kevin Lai, chief economist for Asia ex-Japan at Daiwa Capital Markets in Hong Kong. “This year they have stopped the liquidity and the bond market is only now catching up with reality.”

Yields remained steady during the party congress in October as banks, mutual funds and other state-backed institutions — often referred to as the “national team” for their role in stabilising the market — continued to buy sovereign debt.

But the buying has recently slowed amid signs the government planned to rein in credit growth.

“Investors, in particular mutual funds which have become the second-largest buyer of China’s government bonds, had previously bought sovereign debt because they had assumed the government would loosen [credit] in the fourth quarter in order to achieve the GDP growth target,” said Jonas Short, Beijing head of Sun Kai Hung Financial, an investment bank. “But the realisation that in fact there will be no loosening whatsoever has triggered the sell-off.”

Industrial commodities hitch a ride on global growth hopes

Metals are rising sharply, but this is not a repeat of the commodity ‘supercycle’

by David Sheppard and Neil Hume in London

© Bloomberg

Industrial commodities are on a tear. Oil, copper and niche metals such as cobalt all shot to multiyear highs in recent weeks, buoyed partly by the strongest and most widespread global growth since the financial crisis.

The move, which has seen Brent crude top $60 for the first time in two years and copper pass $7,000 last month, has been accompanied by renewed interest from investors and hedge funds who had largely abandoned the sector during a brutal slump over the past three years.

Now, with growth picking up and commodity markets tightening due to under-investment and producers’ attempts to rein in output, some industry executives and analysts say funds are again treating commodities as the go-to assets to profit from global growth.

They caution, however, that while the commodity cycle appears to be turning, this is not a repeat of the so-called “supercycles” that propelled oil and metals to record highs last decade, as China’s rapid industrialisation caught the industry napping.

“We are in the upswing of a classic commodity cycle but this time — while demand is strong — it is being driven by supply constraints rather than a sudden surge in consumption that the industry just wasn’t ready for,” said Julian Kettle, vice-chairman of metals and mining at Wood Mackenzie.

“The last five years there has been under-investment in metals and to a certain degree energy and, while supplies are relatively comfortable, investors are starting to see that producers are risking storing up problems for the future.”

The issue, analysts say, is that miners and oil producers were so badly burnt by the commodity crash that they have pulled investment from new projects during the downturn.

While demand is not soaring at the rate it was last decade, it is now expanding quickly enough to provoke concerns about future supplies, drawing in investors who want to tap into global growth and to have a possible hedge against rising inflation.

“The herd-like behaviour from investors is certainly reminiscent of what we saw a decade ago,” said Caroline Bain, chief commodities economist at Capital Economics in London.

“But a lot of this optimism we’re seeing is about future demand. The crash in prices has caused much lower investment.”

Take oil, for example. Swiss commodity house Trafigura was one of the first to sound the alarm in September when it warned demand could exceed supply by as much as 4m barrels a day by the end of this decade, after energy companies halted $1tn of spending on new production during the oil crash.

While the market is currently being propped up by Opec supply cuts, doubts are growing that the US shale industry will be able to meet future demand growth wholly on its own, which is forecast to keep expanding even as electric cars become a bigger part of the market.

Hedge funds have amassed a near-record bet on higher Brent crude oil prices in recent weeks.

In metals, the industry has been awash with projections that the same growth in electric cars will transform corners of the market, with nickel — long a laggard on the base metals complex — set to see demand soar as battery use grows, while copper is also seen benefiting due to its use in charging points.

Cobalt, essential to modern battery technology, has also become the industry’s new darling, with supply dominated by challenging jurisdictions such as the Democratic Republic of Congo, where 50 per cent of the metal is mined. The price has soared by 200 per cent over the past 18 months.

Ivan Arriagada, chief executive of Chile-focused copper producer Antofagasta, said this week that the talk around electric vehicles meant that investors were looking at metals and mining with different eyes.

“We have generally been seen as an industry at the periphery of the modern economy and all this [the electric vehicle narrative] is showing that metals are very important,” Mr Arriagada said.

Ian Roper, general manager of Chinese metals data company SMM, highlighted, however, that it is still supply issues rather than demand that has provided the main impetus for the recovery in industrial metals. China has prioritised cutting pollution, leading it to place restrictions on mines and smelters for many key metals and minerals, including steel and coal.

“Given we’ve seen all the clampdowns from the supply side and the lack of investment in new mines globally that could put commodities on a very firm footing on the next three to five year cycle,” Mr Roper said.

Not all commodities are benefiting, however. Agricultural commodities, from grains to pulses, remain weighed down by bumper crops. Gold, which tends to act as a hedge against weak economic growth, is likely to face headwinds.

Paul Horsnell, head of commodities research at Standard Chartered, said the key message was investors still need to pick and choose commodities and the companies that produce them carefully.

“This probably isn’t a rising tide that is going to raise all ships,” Mr Horsnell said.

“Each of the commodities that has rallied has its own unique story and fundamentals, so investors need to be cautious. In a lot of them we’re going up simply because prices have been too low.”

Additional reporting by Henry Sanderson

The Trouble With Spanish Nationalism


Spain is at once very young and very old. For most historians, modern Spain was born in 1469, though some argue that something resembling Spain existed as far back as fifth century B.C. Yet the political structure that governs Spain today has been in place for just 40 years.

Spain is, moreover, at once very strong and very weak. Few countries in the world have governed empires as vast as Spain’s was in the 16th and 17th centuries. The Spanish language attests to its legacy: The only language in the world with more native speakers than Spanish is Mandarin. Yet in the past 200 years, few countries in the Western world have had as turbulent and violent a history as Spain.

In the 1960s, Spain was a backwater, politically isolated from much of the world and economically stunted compared with its European neighbors. By 1981, its fortunes had changed, and it has been making up for lost time. Spain is now the fourth-largest economy in the European Union and the 13th-largest economy in the world, with a gross domestic product of roughly $1.2 trillion. It is also the fifth-most populous country in the eurozone, accounting for just under 10 percent of its total population.

Now Spain’s political foundations are shaking once more. Catalonia, a wealthy autonomous region in the northeast, has declared independence, as it has been inclined to do in the past. But the prospect of a new nation-state is not in question. Catalonia will not secede from Spain. The government in Madrid will not allow itself to preside over the dissolution of the country. But Catalonia’s independence referendum raises a difficult question: What happens when two peoples claim the same land for different nations?

Spain’s peculiar history explains how Madrid and Catalonia have come to ask themselves this very question again in 2017. Theirs is a story shared by nearly every nation-state – and every would-be nation-state – in the world. And though the outcome is all but certain, a better understanding of why this is so can teach us much about the geopolitics of nations.

Lower Stakes

Geography affects the development of all nations in profound ways, but rarely has it done so more strikingly than in Spain. Today the country is renowned for its beaches, but its defining geographic feature is its mountains. On the European Peninsula only Switzerland boasts a higher mean altitude. It is the existence – and more important, the location – of these mountains that has fostered the distinct, regional communities that make Spain so difficult to govern.

The Iberian Mountains have peaks as high as 7,500 feet (2,300 meters) and have always isolated northeastern Spain from the center of the country. In the northwest are the valleys and low mountains of Basque Country, another of Spain’s autonomous communities and, aside from Catalonia, the one with the most well-defined national consciousness. Farther west, the Cantabrian Mountains separate the coast of northwestern Spain from the interior of the country. The region of Galicia in the northwest corner of Spain has had serious independence desires of its own at various points in Spanish history.

South of the Cantabrian Mountains is the Northern Meseta, or the northern plateau. The central mountains border the Northern Meseta to the south and separate it from the Southern Meseta, which is home to the capital, Madrid. Together, the Northern and Southern Mesetas account for almost 40 percent of the land of the entire Iberian Peninsula, yet they are sequestered by mountain ranges. South of the Southern Meseta are yet more mountains – the Sierra Morena – which separate the Southern Meseta from the Guadalquivir River Valley. This valley is bordered to the east by the Baetic Mountains and the Sierra Nevada range, with snow-capped peaks that reach almost 12,000 feet.

Last and most important are the Pyrenees, in northeast Spain, which separate France from the Iberian Peninsula. The region was named by the Greeks, and later the Romans stayed close to this moniker, calling it “Hiberia” after the Iber River, known now as the Ebro River.

It’s hard to overstate the geopolitical significance of the Ebro in the ancient world. The area between the Ebro and the Pyrenees was the de facto “demilitarized zone” between ancient Carthage and Rome. When Hannibal crossed the Ebro, he started the Second Punic War, a war that determined that it was to be Rome, and not Carthage, that would rule the Mediterranean.

The stakes are not nearly as high today, but the Ebro River Valley is where Spain’s current crisis is unfolding. Sandwiched between the Pyrenees and the Iberian Mountains, the Ebro River Valley flows through Aragon and Catalonia. It is the lifeblood of these regions.

Though mountains are Spain’s most conspicuous geographic feature, they are not the only one to impede government efforts to unify the country. The weather patterns in Spain differ profoundly from region to region. Northwestern Spain gets a great deal of rain each year – sometimes as much as 80 inches a year. Compare that to the Southern Meseta, which sometimes sees as little as 10 inches of rain per year. Central and southern Spain are much dryer, though the Guadalquivir River Valley is a notable exception. Northeastern Spain has comparatively less rainfall too, but Catalonia has the Ebro River (and Valencia the Turia River) for irrigation.

None of Spain’s major rivers, though, connect to one other. This is true of most European states, but it is especially pronounced in Spain because of the way the mountains and the climate serve to define the country’s regions. A unified Spain, where a strong central government can execute its authority, requires the expensive work of building the infrastructure necessary to stitch the country together. Spain’s geography challenges central rule because it creates resilient national and linguistic identities.

Geography has confounded every ruler from Isabella I to Mariano Rajoy. But it’s not that simple. If geography alone defined political power, Spain would never have unified as a country, let alone become one of the richest and most powerful empires in the modern world. Spain has never lost the legacy of its diversity, but in modern times it has always tried, and mostly succeeded, to consolidate that diversity under the idea of the Spanish nation. When Catalonia declared its independence, Spanish Prime Minister Mariano Rajoy said, “Spain is a serious country and a great nation.” He wasn’t wrong. Spain is a serious nation-state, and it is serious not because of its geography but despite it.

Most history books teach that modern Spain was the result of the marriage of Isabella I of Castile and Ferdinand II of Aragon. There is, of course, a slight problem with ascribing the birth of the Spanish nation to Isabella and Ferdinand’s nuptials – neither of them was, or became, “of Spain.” Both were rulers of separate kingdoms, and when Isabella passed away before Ferdinand, he simply returned to Aragon. The dynasties that ruled Spain in the centuries after Isabella and Ferdinand were family dynasties – first the Hapsburgs, then the Bourbons. Isabella and Ferdinand gained more power than any of their predecessors, but they did so by maintaining the laws and local constitutions of the various lands under their dominion.

Still, two important things happened during the reign of Isabella and Ferdinand: the Reconquista and the discovery of the New World. The Reconquista was the result of centuries of conflict. Muslim forces invaded the Iberian Peninsula in 711, and by 717 they had reached the Pyrenees. Muslim rule of the Iberian Peninsula would ebb and flow for almost 800 years. Sometimes the Muslims occupied nearly the entire peninsula, but mostly they controlled the southern half of what we now call Spain. They named this territory al-Andalus.

Medieval Spain, then, was diverse not just because of Spain’s geography. The Muslim invasion of Spain created a religious diversity that is present nowhere else in Europe except perhaps in the Balkans, where the Ottoman Empire exerted control for many centuries. There was also a large and influential Jewish population in medieval Spain.

This diversity was a source of intellectual creativity – and of cultural provocation. Christian rulers in northern Spain never accepted the legitimacy of the Muslim invaders, and for centuries they pushed the Muslims farther and farther south. Their efforts culminated under Ferdinand and Isabella, who drove the last Moorish kingdom of Grenada off the peninsula in 1492. That same year, the Spanish Inquisition, which had begun in 1478, decreed that all Jews and Muslims remaining in the Iberian Peninsula should convert or leave.

Most of Europe was staunchly religious, but no Western European country remained as religious for as long as Spain. Spain’s national identity grew partly from the idea that it was where the Muslim invasion of Europe had been stopped. Spain may well have needed religion to hold its society together, since it could not depend fully on the peoples’ identification with a unified and indivisible Spanish nation. Being monarchs was not enough for Ferdinand and Isabella to receive support, but being the Christian vanguard in the fight against Islam substantiated their claims. Their tactic has been used throughout modern Spanish history. Francisco Franco, who helmed a military dictatorship in Spain for 39 years in the 20th century, was a devout Catholic who did not shy from using his faith to legitimize his rule and bring the country together under a common banner.

The second thing that happened under Ferdinand and Isabella was the discovery of the New World. Christopher Columbus was born in Genoa, but it was Ferdinand and Isabella who agreed to fund his expedition in 1492. Columbus was not expecting to discover the Western Hemisphere, of course, and Ferdinand and Isabella were not expecting him to discover it either. Columbus was looking for a shorter way to get to Asia. But Columbus did discover parts of the New World, and he claimed those discoveries for the Crown of Castile. By 1503, Isabella and Ferdinand were dispatching bureaucrats to their new holdings and organizing what would become the Spanish Empire. By 1545, the new Spanish Empire had struck gold (and silver). The political union that had been made possible by Ferdinand and Isabella’s marriage suddenly came with a dowry of immense wealth. Wealth conferred on Spain the power to challenge the rest of Europe itself.

Powerful though it may have been, Spain was still a hodgepodge of variegated peoples. The Spanish nation still did not exist. Money helped its rulers forget these differences, but the system that was built around it was difficult to sustain. By the 17th century, that system was beginning to come apart. A great example can be found in the Catalan Revolt of 1640. The crown had to finance its various military conflicts, and so it levied more taxes on the Catalans, lest Castile continue to foot a disproportionate amount of the bill. Catalonia, like other Spanish regions, viewed itself as part of the Spanish Empire but separate from Spain when it came down to culture, language and the rule of law. It revolted accordingly.

Centuries later, when nationalists of the 1800s sought to forge a Spanish nation, they harkened back to the reign of Ferdinand and Isabella and their two great marks on history. It was the perfect grist of a national myth, one compelling enough to bind together Spain’s disparate regions.

With Independence Came Chaos

Europe changed irrecoverably in the 19th century. Nationalism was in the air, and the emergence of new nation-states began to change the balance of power, with frightful consequences to come in the 20th century. For Spain, the watershed event was the Peninsula War of 1807-1814, one of the Napoleonic Wars. Spain and France allied together to invade Portugal, but France betrayed Spain and occupied it. In 1808, an insurrection against the French began in Madrid but soon spread to other regions. In the past these regions had squabbled among themselves, but France gave them a common enemy. Thus began the Spanish War for Independence.

Spain would win its independence, aided as it was by the United Kingdom, but with independence came chaos. The country had, in fact, already begun to destabilize – the Spanish Empire had been in decline for more than a century, and its alliance with Napoleon was a last-ditch effort to reverse the decline. The French occupation was merely the final straw. Now autonomous, Spain had the daunting task of building a system of governance capable of maintaining order in a rapidly changing yet already diverse country. The 19th century would not be a peaceful one. By the end of the century, Spain had tried its hand at nine different constitutions and two different forms of government. It was constantly changing democratic political structures and restoring the monarchs from different families.

Spain’s most famous civil war was fought after the turn of the century, from 1936 to 1939, but it was at war with itself well before then. The preceding conflicts are known as the Carlist Wars. The Carlist Wars had at least three chapters in the 19th century, but in the Third Carlist War (1872-1876) a new king was to be installed, one who meant to restore the local constitutions of Catalonia, Valencia and Aragon. During this time there was even a short-lived state in the Basque Country. The Spanish government managed to crush this rebellion, but the appetite for regional autonomy could not be suppressed. Increasingly a haven for labor movements, communists and even anarchists, Catalonia would revolt again in 1909, only to be put down by King Alfonso XIII. Jose Ortega y Gasset, one of Spain’s most famous philosophers, would write in 1922 that Spain had become an “invertebrate,” a people ruled by a government that hadn’t the slightest idea how to best respond to their needs.

Ortega y Gasset was right. Spain had not yet coalesced into a nation, and its leaders had not yet been able to respond to the needs of all the people. In 1931, yet another constitution was ratified, and for a few years, Spain’s Second Republic tried to bring order to the country. It failed. The new government was actually a friend to Spanish regions, but more traditional elements in the country, such as the military and the clergy, believed regional autonomy threatened the soul of Spain. They believed the electoral process unfairly brought certain groups to power – indeed, the Popular Front won the 1936 elections with less than 50 percent of the vote – and they were unable to fully assert their control.

Yet another military coup ensued. Its leader, Francisco Franco, would rule Spain as a dictator for almost 40 years. He was supported by the likes of Hitler and Mussolini, who saw in him a shared sense of nostalgia for “better” times. (Spain was “better” in the time of Ferdinand and Isabella, Germany was better in the time of Teutonic knights, and Italy was better in the time of ancient Rome. Such was the cultural currency of fascism.) On the primacy of Spanish nationalism, Franco would not compromise. The nation was all encompassing and all important. More than 500,000 people would die fighting over what it meant to be Spain before Franco emerged victorious in 1939.

Franco was an authoritarian, if not quite a totalitarian in the vein of Hitler. His rule was absolute. His military dictatorship crushed regional autonomy and political dissent throughout the country. And yet for all the regime’s sins, Franco’s government gave Spain its first extended period of political stability in more than a century. By the time he left office, Spain had become an important Cold War ally of the United States, and economic reforms had been made that significantly improved the Spanish economy and primed it for the success Spain would enjoy after it joined the European Union.

His “success,” such as it was, raises an uncomfortable question: Did Spain need a heavy-handed regime to define what it meant to be Spanish? The Spanish people eventually rejected Franco’s vision, of course, but Franco’s desire to unify Spain was nothing if not ambitious, something that all Spanish leaders before him had also desired to accomplish but never quite succeeded. Tellingly, the widespread dissatisfaction with Franco may have brought the Spanish people closer together, much as the contempt for the French occupation had more than a century earlier.

In any event, in 1978, Spain adopted a new constitution, one that recognized the Spanish nation as well as the legitimacy and rights of its autonomous regions. It was unclear whether the constitution would hold, but it did. Spanish King Juan Carlos put down a military coup in 1981 to protect it. It has defined Spanish politics to this day.


Most countries become countries violently. The United States did not become a nation until more than 600,000 soldiers and countless civilians died in its Civil War. Modern China did not become a nation until millions – and perhaps tens of millions – died in China’s Civil War. Birth is bloody and messy and painful, even if the end result is joyous.

All nation-states have demons to face. Even the most homogeneous of peoples are not completely homogeneous. Nationalism is a powerful ideology, one that is based on something very real: the desire of a people with shared language, or culture, or values, to live in community and freedom with and for each other.

But its power cuts both ways. A large portion of the Catalan population wants to be independent, and if history teaches us anything, it teaches us that a large portion of the Catalan population has always wanted to be independent. Not all Catalans do, though, for Catalonia is no more monolithic than is Spain. It doesn’t seem as though there is a critical mass of Catalans willing to pledge their lives, fortunes and sacred honor to prevent the central government from reasserting its control. Until Catalonia has the will and power to make itself independent, the desires of its secessionists will remain stillborn.

For Spain, Catalonia’s independence declaration – even if it represents the will of only some 38 percent of the Catalan population – leads to a dark place. The Spanish Constitution was designed in part to remove Spain from its past, to pave a democratic way forward for a country that could be as proud of its internal diversity as of the unity of the Spanish nation. But wishing something does not make it so, and writing it down in a constitution does not necessarily make it real for the people. In crushing Catalonia’s desires, the government in Madrid is doing the same thing previous Spanish governments have been forced to do when facing revolts in the periphery. Letting Catalonia go would mean the Spanish nation is more myth than reality. Forcing Catalonia to stay at gunpoint means present-day Spain is not exceptional – it is like all previous Spanish regimes.

This is an issue faced by nation-states around the world. For a time, the ideologies that moved the world were based on ideas, not on personal relationships. Communism tried to universalize the proletariat, wherever he was and whatever language he spoke. Western liberalism, with its emphasis on individual rights, said governments derived legitimacy by protecting the rights of individuals, wherever they lived and whatever personal beliefs they held. But a son does not choose his mother based on ideological preference, and a worker does not choose his or her language and culture.

And so the world, after a move toward larger and larger political bodies, is self-segregating, rallying around familiarity and self-reliance and national loyalty. It is Spain’s turn now. But it won’t stop in Spain. What Spain does will not affect the world – but the demons Spain is facing are not Spain’s alone.

The US Plutocracy’s War on Sustainable Development


Inmates in the USA

NEW YORK – The US plutocracy has declared war on sustainable development. Billionaires such as Charles and David Koch (oil and gas), Robert Mercer (finance), and Sheldon Adelson (casinos) play their politics for personal financial gain. They fund Republican politicians who promise to cut their taxes, deregulate their industries, and ignore the warnings of environmental science, especially climate science.

When it comes to progress toward achieving the United Nations Sustainable Development Goals, the US placed 42nd out of 157 countries in a recent ranking of the SDG Index that I help to lead, far below almost all other high-income countries. Danish author Bjørn Lomborg was puzzled. How could such a rich country score so low? “America-bashing is popular and easy,” he surmised.

Yet this is not about America-bashing. The SDG Index is built on internationally comparable data relevant to the 17 Sustainable Development Goals for 157 countries. The real point is this: sustainable development is about social inclusion and environmental sustainability, not just wealth.

The US ranks far behind other high-income countries because America's plutocracy has for many years turned its back on social justice and environmental sustainability.

The US is indeed a rich country, but Lord Acton’s famous aphorism applies to nations as well as to individuals: power corrupts, and absolute power corrupts absolutely. The US plutocracy has wielded so much power for so long that it acts with impunity vis-à-vis the weak and the natural environment.

Four powerful lobbies have long held sway: Big Oil, private health care, the military-industrial complex, and Wall Street. These special interests feel especially empowered now by Donald Trump’s administration, which is filled with corporate lobbyists, not to mention several right-wing billionaires in the cabinet.

While the Sustainable Development Goals call for mitigating climate change through decarbonization (SDG 7, SDG 13), US fossil-fuel companies are strenuously resisting. Under the sway of Big Oil and Big Coal, Trump announced his intention to withdraw the US from the Paris climate agreement.

America’s annual energy-related per capita CO2 emissions, at 16.4 tons, are the highest in the world for a large economy. The comparable figure for Germany, for example, is 9.2 tons. The US Environmental Protection Agency, now in the hands of lobbyists from the fossil-fuel sector, dismantles environmental regulations every week (though many of these actions are being challenged in court).

The SDGs also call for reduced income inequality (SDG 10). America’s income inequality has soared in the past 30 years, with the Gini coefficient at 41.1, the second highest among high-income economies, just behind Israel (at 42.8). Republican proposals for tax cuts would increase inequality further. The US rate of relative poverty (households at less than half of median income), at 17.5%, is also the second highest in the OECD (again just behind Israel).

Likewise, while the SDGs target decent jobs for all (SDG 8), American workers are nearly the only ones in the OECD that lack guaranteed paid sick leave, family leave, and vacation days. The result is that more and more Americans work in miserable conditions without job protections. Around nine million American workers are stuck below the poverty line.

The US also suffers from an epidemic of malnutrition at the hands of the powerful US fast-food industry, which has essentially poisoned the public with diets loaded with saturated fats, sugar, and unhealthy processing and chemical additives. The result is an obesity rate of 33.7%, the highest by far in the OECD, with enormous adverse consequences for non-communicable diseases. America’s “healthy life expectancy” (morbidity-free years) is only 69.1 years, compared to 74.9 years in Japan and 73.1 years in Switzerland.

While the Sustainable Development Goals emphasize peace (SDG 16), America’s military-industrial complex pursues open-ended wars (Afghanistan, Iraq, Syria, Yemen, Libya, to name some of America’s current engagements) and large-scale arms sales. On his recent visit to Saudi Arabia, Trump signed a deal to sell over $100 billion in weapons to the country, boasting that it would mean “jobs, jobs, jobs” in America’s defense sector.

America’s plutocracy contributes to homegrown violence as well. The US homicide rate, 3.9 per 100,000, is the highest of any OECD country, and several times higher than in Europe (Germany’s rate is 0.9 per 100,000). Month after month, there are mass shootings in the US, such as the massacre in Las Vegas. Yet the political power of the gun lobby, which opposes limits even on assault weapons, has blocked the adoption of measures that would boost public safety.

Another kind of violence is mass incarceration. With 716 inmates per 100,000 people, America has the world’s highest incarceration rate, roughly ten times that of Norway (71 per 100,000).

Remarkably, America has partly privatized its prisons, creating an industry with an overriding interest in maximizing the number of prisoners. Former President Barack Obama issued a directive to phase out private federal prisons, but the Trump administration reversed it.

Lomborg also wonders why the US gets a low score on global “Partnership for the Goals,” even though the US gave around $33.6 billion in official development assistance (ODA) in 2016. The answer is easy: relative to gross national income of almost $19 trillion, ODA spending by the US amounted to just 0.18% of GNI – roughly a quarter of the global target of 0.7% of GDP.

America’s low ranking in the SDG Index is not America-bashing. Rather, it is a sad and troubling reflection of the wealth and power of lobbies relative to ordinary citizens in US politics. I recently helped to launch an effort to refocus state-level US politics around sustainable development, through a set of America’s Goals that candidates for state legislatures are beginning to adopt. I am confident that a post-Trump America will recommit itself to the values of the common good, both within America and as a global partner for sustainable development.

Jeffrey D. Sachs, Professor of Sustainable Development and Professor of Health Policy and Management at Columbia University, is Director of Columbia’s Center for Sustainable Development and of the UN Sustainable Development Solutions Network. His books include The End of Poverty, Common Wealth, The Age of Sustainable Development, and, most recently, Building the New American Economy.