Prosperity, congestion, and the case for regional policy

Economic prosperity has its downsides. In the UK, London and the South East have proved to be the most dynamic parts of the country in generating income and wealth in recent decades. But the way such outcomes have been managed has left these regions with a now all too familiar problem: congestion.

It is not just the roads. There is also a housing shortage, which has contributed to soaring house prices, particularly in London, where average prices have roughly doubled since the recession.

There are different ways to look at these kinds of outcomes. We could call them symptoms of ‘overcrowding’: there are too many people. Alternatively one could praise the job-creating capacity of the UK economy, and particularly in these regions. Job-creation attracts workers from other regions of the country, as well as from abroad; immigration plays a role. Continue reading

Free-market policies rarely make poor countries rich (Ha-Joon Chang’s Thing 7)

23-things-they-don-t-tell-you-about-capitalismThese telling extracts from Ha-Joon Chang‘s 23 Things They Don’t Tell You About Capitalism come from ‘Thing 7’ (p.63-5):

“Contrary to what is commonly believed, the performance of developing countries in the period of state-led development was superior to what they have achieved during the subsequent period of market-oriented reform. There were some spectacular failures of state intervention, but most of these countries grew much faster, with more equitable income distribution and far fewer financial crises, during the ‘bad old days’ than they have done in the period of market-oriented reforms. Moreover, it is also not true that almost all rich countries have become rich through free-market policies. The truth is more or less the opposite. With only a few exceptions, all of today’s rich countries, including Britain and the US – the supposed homes of free trade and free markets – have become rich through the combinations of protectionism, subsidies and other policies that today they advise the developing countries not to adopt. Free-market policies have made few countries rich so far and they will make few rich in the future.”

To illustrate the above, a brief country case study:

“[This] country’s trade policy has literally been the most protectionist in the world for the last few decades, with an average industrial tariff rate at 40-55 per cent. The majority of the population cannot vote, and vote-buying and electoral fraud are widespread. Corruption is rampant, with political parties selling government jobs to their financial backers. The country has never recruited a single civil servant through an open, competitive process. Its public finances are precarious, with records of government loan defaults that worry foreign investors. Especially in the banking sector, foreigners are prohibited from becoming directors while foreign shareholders cannot even exercise their voting rights unless they are resident in the country. It does not have a competition law, permitting cartels and other forms of monopoly to grow unchecked. Its protection of intellectual property rights is patchy, particularly marred by its refusal to protect foreigners’ copyrights…

…[the country described above]…is the USA, around 1880…one of the fastest-growing – and rapidly becoming one of the richest – countries in the world…[following] policy recipes that go almost totally against today’s neo-liberal free-market orthodoxy.”

Economic ‘distortions’, ideology and the role of government

HudsonTradeDevFDebtMichael Hudson, the heterodox economics Professor whose work I have featured on this blog quite a bit this year, wrote a history and critique of theories of trade and development back in 1992. It was reissued in 2009 and I have just finished reading it.

His central thesis is that, to quote the subtitle, “trade and development concentrate economic power in the hands of dominant nations”. I will not be reviewing the book here, but here is an extract, the gist of which I have agreed with since I was a graduate student (p.169-70): Continue reading

The Koreas: totalitarian socialism vs industrial policy

A link below to Michael Roberts’ blog post on the Koreas. It focuses mainly on some analysis of the post-Korean War economic history of the North, but also some comparison with the capitalist South and his desire to see the two of them reunified under centrally-planned socialism, something that I cannot see being a success.

The diverging fortunes of North and the South in terms of economic (and political) development illustrate the potential dynamism of capitalism versus largely autarkic socialism. But it does not lend support to an idealised and unfettered free-market capitalism either. Continue reading

America is regressing into a developing nation for most people

“The US is no longer one country, but dividing into two separate economic and political worlds.”

Via the Evonomics website, Lynn Parramore provides a useful review of The Vanishing Middle Class: Prejudice and Power in a Dual Economy

Brexiters’ fantasy island

Some UK politicians happy to walk away from the Brexit negotiations without a deal have brokered the idea of turning their country into a minimal tax, minimal regulation economy, and have cited Singapore as a model to follow. They should look more closely.

As James Crabtree wrote in yesterday’s FT:

“Many things the Brexiters think they admire about Singapore also turn out to be only half-true. Singapore is indeed a competitive market economy with relatively low tax and a threadbare social safety net. But rather than a model of laissez-faire capitalism, its state is actually highly interventionist, from its famous chewing-gum ban to wide-ranging public ownership of everything from banks to airlines.

Its success as a financial hub, meanwhile, is based not only on openness to capital and goods, but also people. Extraordinarily high immigration has seen the island’s population double in 30 years. Today, not far off a third of its 5.8m people are foreigners, from Filipino nannies and Bangladeshi builders to Japanese bankers. The government has tightened migration rules recently, but still expects to add 1m to its population by 2030 – hardly a policy migration-averse Brexit backers would want to copy.”

State intervention in the market, widespread public ownership, mass immigration. These are not the sort of policies supported by Brexiters, at least those on the right of the political spectrum. Continue reading