African development, commodities and diversification

“CentralKigali” by SteveRwanda – Own work.

Roger Bootle points out that Africa’s fairly rapid growth in the past few years is at risk from the current slump in global commodity prices. Many of the continent’s economies are overly dependant on the export of commodities, and will therefore suffer disproportionately from the slowdown and structural change in China. He suggests that they generally have poor governance and that an improvement in this factor is the key to more rapid and sustainable development.

I agree with Bootle that much of Sub-Saharan Africa (SSA) has done well in recent years due to the boom in China and the resulting rapid growth in demand for commodities. I also think that it is vital that these economies diversify away from commodities and towards industry and services.

However, the claim that improved governance is the solution to poverty among developing countries is wrong-headed. Continue reading

Working harder or smarter? Thoughts on economic progress and social welfare.

Production_LineShould the British work as hard as the Chinese? Jeremy Hunt, the UK government’s Health Secretary, seems to think so. While the Prime Minister, David Cameron, has subsequently called his remarks, ‘misinterpreted’, Hunt is implying that we as a nation should in general work harder in order to become more wealthy and successful. In comparing the low paid (and others?) in the UK with those in China and Asian economies more generally, he is also implying that longer working hours are something to aspire to.

It is well known that, on average, workers in the US work longer hours and take shorter holidays than the British, and many economies on the European continent in turn have shorter working hours and take longer holidays than the Brits.

In mainstream economics, the aim of working and earning is to maximise welfare, rather than simply income and wealth. Continue reading

The labour market of fear (Ha-Joon Chang’s Thing 21)

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William Beveridge

Is job insecurity necessary for good economic performance? Since the 1980s, governments across the world have been advised to make labour markets more ‘flexible’. Hiring and firing have been made easier; legislation (along with deindustrialisation) has weakened trade unions’ influence on wages and working conditions; privatisation and the contracting-out of employment have strengthened the hand of employers, to the detriment of the lowest earners; the scope of the welfare state has been reduced, although the extent of this has varied between countries.

This mixture of government policies, and structural change driven by advancing technology, have arguably increased job insecurity for millions of workers in rich and poor countries over the last three decades. This is a big change from the world of the post-war period, when the economist William Beveridge helped to create the welfare state and the conditions for full employment in the UK. He argued that government policies for full employment would remove the threat of the sack as a disciplining device for the workforce, and strengthen workers’ bargaining power in the labour market. This represented a fundamental change, but Beveridge was optimistic that it would not be a problem. Continue reading

23 Things They Don’t Tell You About Capitalism: an occasional series

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Ha-Joon Chang

I have long found the writings of Cambridge economist Ha-Joon Chang to be interesting and inspiring. As well as being an academic focussing on development economics, he has found time to write more popular works for the general public.

One of his most recent books is ‘23 Things They Don’t Tell You About Capitalism‘. It attempts to dispel many of the myths about so-called free-market economics, which has been hugely influential in setting the framework for government policies around the world since the 1970s. Continue reading

Marx’s Grundrisse: some key points

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Karl Marx

Karl Marx’s Grundrisse is a collection of preparatory notebooks, laying out some of the themes which he was to explore in his great work Capital. It is not an easy read, but it helped that I have read some Marxist economics already, including Capital. Many of the ideas were therefore familiar.

Here are a few of the ideas which Marx explores in this book, with occasional comments from me: Continue reading

The failure of trickle-down economics

The chart below shows that while inequality in the UK rose under Thatcher, the poorest families saw virtually no increase in their disposable income over the same period. So much for the theory that making the rich richer will make everyone else richer too.

Under Tony Blair, inequality stabilised, but the incomes of the poorest rose significantly. Both these trends were due to redistribution through the tax system. Had the government not intervened, inequality would have risen further and the poorest would have seen far less improvement in their incomes.

The current government is about to cut tax credits significantly, which will hit the poorest the hardest once again. So much for compassionate conservatism.

Utopia - you are standing in it!

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Why economics is political

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Adam Smith

Economics is inevitably political. Back in the 18th century, when Adam Smith wrote The Wealth of Nations, economics was known as political economy. This was because thinkers like Smith considered the role of government in promoting the prosperity of the nation through specific policies such as providing public education and encouraging trade to be vital. He also conducted his analysis, as did all the so-called classical political economists as well as their chief critic in the 19th century, Karl Marx, in terms of classes: workers, capitalists and landlords. Conflicts of interest between them were seen, especially by Marx, as inevitable as capitalism developed and economies grew.

By contrast, modern economics, with its roots in neo-classical ideas, starts with the individual as its unit of analysis, and draws conclusions about the economy based on ‘microfoundations’: aggregate behaviour is held to flow from assumptions made about individual ‘representative agents’. Continue reading