Dane Rowlands is an economist by trade. He has been teaching at Carleton University since 1994 and has been director of the Norman Paterson School of International Affairs for the past three years. His research interests include international debt, multilateral financial institutions, official development assistance, international migration, peacekeeping, conflict and development. He teaches courses in international finance and conflict economics. He sat down with Diplomat’s editor, Jennifer Campbell.
Diplomat magazine: NPSIA is known as a training ground for diplomats. Is that still the case?
Dane Rowlands: Yes, but I think in the formal sense, the diplomatic section is probably smaller. It’s more policy writ large. I think the vast majority of our students want to end up at the Department of Foreign Affairs, Trade and Development because that incorporates the development side as well. CIDA and Foreign Affairs used to be the two biggest areas. The foreign service officer section is now significantly smaller than it used to be. And there are a lot of students who don’t want the foreign service officer life, especially if they’re thinking of family and stability. Many are interested in the policy process.
DM: Development and foreign aid are subjects you’ve studied forever. Looking at Canada’s current foreign aid policy, are we doing a good job?
DR: The traditional economist answer is yes and no. It’s an interesting time in aid policy. There’s more and more resistance in the public sector to this notion that more is always better, that you have to make the 0.7 percent target. People in development think 0.7 should be a notional target, but there’s a growing recognition that it’s just as important to think about the efficacy of the aid that we give and that’s led to a couple of different directions. One, you get this centre for global development approach, which tries to measure this footprint on development, taking into account foreign aid, remittances, investment, migration. So this whole wider area of what could be considered as contributing to the development of poorer countries. They’re trying to expand beyond the narrow measurement of just foreign aid. The second direction is how do you improve the projects and programming of foreign aid and there, I think Canada, despite the hiccups, has done a good job. I think the Maternal and Newborn Child Health Initiative has focused the aid program and its money. The government certainly chose an important area and channelled money in a substantive way.
I don’t think you can actually address the issue of how much money do we put into an aid program until you can convince the electorate we are actually doing some good.
DM: One of outgoing Development Minister Christian Paradis’ approaches has been to provide development funding to countries in which Canada has other interests, such as trade. Is that a good model?
DR: That was one of the complaints, risks, concerns when CIDA merged with DFAIT — the extent to which other interests would affect the development agenda. I think it’s too early to tell how that will work out. In favour of Mr. Paradis’ approach is the idea that if there’s no constituency — a large diaspora or some potential private corporate interests, some kind of historical connection or linguistic tie — the aid agenda will suffer because there isn’t the pressure. The countries of focus change depending on the party in power, but it’s been relatively constant. There is a need to have stability. Programs work better when you have that long-term engagement.
DM: What are your thoughts on what’s happening in Greece and where will it all end up?
DR: They have a singular capacity to disappoint. The origins, from my perspective, are relatively clear. There was overlending to Greece by the European financial system. We all know why. When they entered the Euro, Greece was able to borrow at cheap rates, so why wouldn’t they? They had been paying 10 or 15 percent on their debt and then, overnight, after joining the Euro, they were down to three percent. Why wouldn’t they borrow like mad? They did and I blame [the electorate] for continually electing these guys who were borderline committing fraud. But it was really the role of private financial institutions to say no and they didn’t. It was part of the over-exuberance. This has been a singular failure of the international financial system. It doesn’t have a way to deal with sovereign bankruptcy. It’s always ad hoc, usually with the IMF involved.
I think the Europeans have a chance to solve this internally. Is more austerity a good thing? The debt-to-GDP ratio is getting worse because the debt is going down a lot slower than the GDP. No one thinks [more austerity] is the answer except the Europeans, who want the Greeks to suffer.
The Europeans have to put in a system that will prevent this from ever happening again. And I think they can.
DM: What should Europe, and countries such as Canada, do about the refugee crisis taking hold in Europe?
DR: Like the Greek crisis, the refugee tragedy is a short-term emergency complicated by two more fundamental challenges to Europe. First, the refugee crisis exposes the tension between the liberal and humanitarian aspirations expressed by some Europeans and the rising nationalism and xenophobia expressed by others. The second challenge is that the desire for a single, open European labour market cannot function if it is unable to agree on rules for a common border. I expect Europe will come up with a temporary fix with some politically and economically stronger countries taking on a disproportionate share of the resettlement burden, but I do not think that solution can continue indefinitely, and there will be increased pressure to address the refugee flows before they reach Europe. In my opinion, Canada can and should take in more refugees, which is consistent with our traditions and will help ease the burden on other states. Polls indicate that most Canadians support such a policy. All parties agree we should take in more refugees, and they should agree to do so before the election.
DM: Moving on to Russia, sanctions against the country by the West seem to be more irritation than deterrent. Do you agree?
DR: Yes. It’s failed as a deterrent. I used to teach a class on sanctions and the key observation is that as soon as you see sanctions in place, they’ve failed. Sanctions are there as a deterrent. A country, when it does something like that, has already factored in the sanctions in advance. Crimea? They say ‘Well, we’ll get sanctions, but we also get Crimea.’ Studies suggest [sanctions are] most effective when you do them on your friends — sanctions against the U.K. and France during the Suez Crisis, for example.
Sanctions are more a signal that you’re upset. To not do it would seem callous. You have to be seen as sending a signal.
DM: Is there something that would be more effective?
DR: The problem is that the more effective forms of sanctions are also the most costly to those issuing them. Sanctions have become much more intelligent in the sense that you target key individuals in the system. Not sending medicine, for example, means innocent people are being affected by sanctions and that has really hurt this as a policy instrument. Targeting leadership and firms close to a regime [is best.] It’s now a science.
DM: What would you do with Putin?
DR: I’m of two minds. Sure, punish him, but this is a mess that should have been avoided, which is easier said than done.
There had to be some real politik in seeing that the Russians were never going to let Ukraine fall into a total western system, part of the EU, NATO. Yes, it’s nice if countries get to determine their own foreign policy, but that’s not the real world. The Europeans were just a little irresponsible by [dangling EU membership before Ukraine without considering how Russia would react.]
I’m not trying to excuse what the Russians did, but it’s cheap for them to do what they did [expanding into Ukraine.] The only option for us with Russia is escalation and no one thinks Ukraine is worth a nuclear war or even a conventional war with Russia.
I don’t think there is a very smart playing of the cards in this case and I think there were some opportunities wasted. Having said that, Russia did what it did and there needs to be a long climb back for them.
DM: Was kicking them out of the G8 a good thing?
DR: I didn’t think letting them in in the first place was a good thing! The G7 was a coherent group — all market-oriented democracies with a long history of rule-of-law. The degree to which they could reach consensus was there and was necessary for them to be effective. Bringing Russia into it as a treat to Yeltsin was absurd. I would have said have a different forum, such as they do with China now. They put the cart in front of the horse by saying ‘We will give you G8 membership and that will solidify your democracy,’ as opposed to saying ‘Solidify your democracy and then you can become part of the G8.’ But it was a sanction, at least, that we could impose on them, so maybe it’s not so bad.
The Russians want to be on the same playing field as the members of the G7. It’s signalled in a lot of their internal policies.
I’m thinking of some of the work I did on aid programs in emerging countries. The Russians wanted their aid program to look exactly like a western aid program for the same cynical reasons and in the same way that dominant donors within the OECD and even in the G7 use definitions of aid that are advantageous to them.
So yes, kicking Russia out was one of the more effective elements in terms of punishing them.
Having said that, Russia is still an important country to engage with. How are you going to get a deal with Iran, Syria [without Russia]? I’m not sure how much longer the cold shoulder will be possible if we’re to make progress on some of these important issues.
DM: Switching gears entirely, what do you make of Canada’s recession?
DR: It’s mild and I think it is, to a degree, temporary. It’s really reflecting what’s gone on in the oil sector. Going down is relatively quick; adjusting on the other side takes a while. It takes time for the firms on the manufacturing side, or any of the sectors, to say ‘Hmm, I have opportunities to expand. But is it worth the effort to do so or is it a temporary blip?’ Whereas on the other side, with the sectors that are declining, there’s no choice, they have to cut labour and costs and can’t invest.
It’s the same in international trade. In international trade, you’re committed to buying things through longer-term trade agreements. If your dollar goes down, you don’t want to anymore, but you’re locked in a contract. That can stretch out for eight months to a year before you actually see a full adjustment to something like a currency change.
We’re at the worst part of this. Having said that, the greater risk of a recession of importance is coming from the financial side. If Europe doesn’t get its act together, you’re going to see more turmoil in international financial markets and that hurts all trading nations in a significant way. It will provide some relief in the sense that the U.S. dollar is likely to go up even further, because there’s always a flight in these crises to the U.S. dollar-denominated assets. But that effect won’t really help us for a few months and the real risk is of the Europeans going into recession. China is already slowing down as is Latin America and that, inevitably, will hurt us as a trading country.
DM: To what do you attribute China’s slowdown?
DR: Well, they’re slowing down to eight percent. Projections are around six percent. If we were at six percent, we’d be jumping for joy. It’s going down because it’s been at such a high level for so long, but I think also, they’re beginning to come to terms with some of the adjustments they have to face.
They have a bit of a precarious shadow or parallel banking system they need to worry about, and there are internal debts. A lot of people have a lot of money tied up in assets that may not be as secure as they think, and some of this money has been leveraged to cause asset bubbles, such as we have seen recently burst in the stock market.
On the recent currency devaluation, the views are mixed. While the U.S. will no doubt complain bitterly and the Congressional China-bashers will cry “foul play,” the fact is that by following along the U.S. dollar’s recent rise in value, the Chinese yuan/renminbi has become probably overvalued relative to its other trading partners, and so a devaluation in the face of weaker-than-expected domestic growth is not unexpected. In addition, some people have suggested that China has been backing off managing the currency too much in order to be seen as less heavily involved in setting its value, something that would help to promote the potential inclusion of the renminbi in the IMF basket that sets the value of the IMF’s SDR (Special Drawing Right), a signal of the international importance of a currency.
By definition, anything in China is huge. Also, it’s partly that they have grown quickly over the last little while. Once you’re richer, it’s harder to grow fast, because you’ve already taken advantage of the easy ways to make things better. The Chinese have had to move really fast because they were so miserably run for so long. There were so many efficiencies that they could gain by reallocating resources. Now they really have to do some research and development on their own. There’s a lot of very interesting innovation and cutting-edge work being done in China now. They’re not just stealing it. Yes, China likely still acquires technology, maybe most of it, in questionable ways (though they are not alone in undertaking industrial espionage), but there are growing signs that many Chinese firms have now gone on to the cutting-edge, where stealing technology often doesn’t work since no one is that far ahead any more, and they are big enough to innovate on their own.
Now the harder part comes, which is how do you sustain high rates of growth? Just taking half of your labour force out of the agriculture sector, which was difficult, but they’ve managed to do it, that was a huge boost to their growth phase. It’s going to be tougher for them for a bit.
DM: But it’s not worrisome globally?
DR: I think politically, there are some concerns because they know the government’s political legitimacy depends, to a large extent, on delivering economic prosperity. But having said that, they’ve done so well for the last while, people’s expectations adjust more slowly. There’s a generation of Chinese who were poor just 20 to 30 years ago, and now they’re incredibly rich and they’re not used to spending, so they’re saving to some extent.
Their one-child policy, which they’ve relaxed, is starting to now bite in terms of the demographic and labour-force effect. So there are a lot of longer-term trends that are coming together. And there are some short-term adjustments they have been making as well, such as propping up their collapsing stock market. There are also attempts to regulate problematic financial institutions and address municipal, provincial and state-owned enterprise debt and financing.
Americans are obsessed with Chinese military expansion. I’m not as concerned about that. I’m mildly optimistic because China has, in my view, been remarkably responsible and responsive to the concerns that have been expressed. Whether they’re just kind of hiding things, who knows?
Observers suggested that there would be a number of destabilizing things China would do and the Chinese government seems to have gone out of its way not to. China as a rogue aid donor was going to destroy the African economy, but they’ve been a little bit sensitive and have adjusted some of their policies. It’s still a problem, but they’ve adjusted. There are places like the South China Sea that are more problematic. But all in all, it’s more encouraging than some people thought.
DM: Are you optimistic about 2016?
DR: Maybe it’s always the case that you’re always balanced on a knife’s edge. There are some real opportunities, if Europe can come to an agreement; and ultimately, I think they will. If the Iran negotiations evolve successfully, I think that would be a big positive. By success, I mean that the ability of Iran to acquire nuclear weapons is inhibited, at least delayed, if not put on hold. The current agreement can plausibly claim to do this as well as can be expected. Also, [one wants to be sure] the easing of sanctions does not lead Iran to increase dramatically its funding for terrorists, which we will have to reserve judgment on.
Ultimately, the upside of an Iran deal is to open the door for Iran to be able to, and to want to, re-engage in a more constructive manner with the wider international community beyond its limited links to Syria, the Houthis in Yemen, Hezbollah and other unsavoury groups. Whether they will take any such emerging opportunity is not obvious, and will be determined by the balance of contending forces and factions in Iran.
None of the reintegration into the global system of an internationally responsible Iran is going to happen quickly, if at all. On balance, I would say the deal makes that a possibility, which it wasn’t before, though at the risk of empowering Iran to do more damage with newly available resources and credibility.
If some kind of a more constructive truce over Ukraine could come about, that would be a big plus. But all those could equally go south. But, if I were to make a prediction, I would probably come out a little bit on the optimistic side.
Obama, as much as he’s a lame duck, has actually been doing some very interesting things lately — Cuba, for example [his initiative to lift sanctions, and allow U.S. citizens to visit Cuba.]
