In this brief video, a journalist gives his view as to why development in Africa has been so difficult. The answer apparently lies in the colonial legacy of (mis)dividing up the continent into states in a way that has failed to give rise to nation-building, both economically and politically. He also points a finger at self-serving elites, who have built great personal wealth but not, in general, the wealth of their own nations.
However, he does ignore the uneven record of growth on the continent since World War Two, which saw varying degrees of economic transformation. It is a tragedy that much good was undone during the ‘lost decades’ of the 1980s and 90s. A number of countries grew more rapidly in the 2000s, mainly due to the expansion of primary commodity exports, but a widespread problem is the failure of governments to diversify their economies into sectors which have more potential for growth in output and productivity, such as manufacturing.
Donald Trump came into office promising to ‘roll back’ the regulatory ‘burden’ on business as part of his economic strategy. The claim is that this will reduce business costs and create jobs by boosting economic growth. But will it work?
The right often complains of the ‘burden’ on business and, particularly in the US, equates the absence of regulation with freedom.
This is emotive stuff. Burden? It sounds bad. Freedom? What’s not to like? But this kind of rhetoric avoids a more nuanced discussion of the issue. Continue reading →
Continuing the occasional series of excerpts from Professor Michael Hudson’sJ is for Junk Economics (2017, p.178). See also my post quoting Ha-Joon Chang here on the same issue:
“Planned Economy: Every economy since the Neolithic has been planned in one way or another. That is why calendar keeping and seasonal rhythms based on the weather and the harvest became the foundation of economic accounting in the Neolithic and Bronze Age for fiscal and trade policy and for land tenure.
At issue in any epoch is who will do the planning and what its aims will be. The ostensible aim of democratic planning is to design tax and regulatory systems to promote economic growth and sustainability, preferably with a fair distribution of income and wealth. For the classical economists this involved taxing or discouraging rentier income, and subsidizing socially desirable investment and basic needs.
Today’s epoch is seeing financial managers replace rulers and elected government representatives as planners of economies. Financial planning is at least as centralized as government planning, but its aims are different: namely, to concentrate income growth and asset-price gains in the hands of the One Percent.
The financial time frame is short-term and extractive. And fiscally, financial planning seeks to shift taxes off unearned income and financial returns onto wages and profits. Most fatally, it favors debt leveraging, leading ultimately to debt deflation and austerity. The main issue in today’s planning debate is thus whether democratic politics can recover the classical public steering and regulatory mechanisms that have been relinquished to the financial sector.”
In Trump’s world, the rich in the US obviously are not rich enough. So he has set out to lower the corporate tax rate to 20 percent and abolish the estate tax. The working and middle classes are, of course, überjoyed …
Yanis Varoufakis is a self-styled ‘erratic Marxist’ and a former finance minister of Greece under the Syriza-led government. He penned his illuminating book The Global Minotaur (TGM) some years ago, in the aftermath of the evolving Global Financial Crisis.
He has become a prolific writer for the intelligent layman, and his website is well worth a look, particularly for those interested in progressive reform in the European Union and the Eurozone.
TGM is Varoufakis’ thesis on the roots of the crisis, which according to him lie back in the 1940s, towards the end of World War II. At that time, the US had emerged as the global capitalist hegemon, economically, politically and militarily.
The 1944 Bretton Woods Conference in New Hampshire was attended by such figures as the economist John Maynard Keynes, who led the British delegation, and Harry Dexter White, his US counterpart. The aim was to construct a post-war global economic and financial order which would avoid another Great Depression, as had occurred in the 1930s, and the achievement of peace and prosperity via international cooperation. Continue reading →
In the video below, Nobel prize-winning economist Joseph Stiglitz describes the comeback of industrial policies in economic debate and policy. Stiglitz comes from the centre-left politically, and certainly takes progressive views on issues such as inequality and state intervention.
He has chosen to critique mainstream neoclassical thinking from ‘within’ by focusing on market failure and imperfections, which opens the way to policies designed to make the market work better. It remains a market-centric viewpoint.
While taking on the mainstream is admirable, this necessarily leaves out the interdisciplinary perspectives of political economy, which in my view offer a richer understanding of socioeconomic phenomena. For those more wedded to the latter, coming from outside the mainstream, industrial policy has been studied in depth for some time.
Despite this, Stiglitz remains an interesting and influential figure.
More from iconoclast Professor Michael Hudson’s book J is for Junk Economics (p.30-32). For a more detailed account, I can recommend his book America’s Protectionist Takeoff 1815-1914, which I have posted on here.
“American School of Political Economy: The northern economists who focused on protective tariffs, infrastructure investment and a national bank to promote industrial and agricultural technology before and after the Civil War (1861-65). Mathew and Henry Carey, Henry Clay and William Seward among the Whigs and, after 1853, the Republicans, provided the economic policy that enabled America to industrialize and overtake England. They also emphasized the positive effect of rising wage levels and living standards on the productivity that made the American economic takeoff possible. Every major Northern politician and region was associated with a major economist: Alexander Everett for Daniel Webster and other Bostonians; Calvin Colton for Henry Clay; the Careys for Pennsylvania industrialists; and E. Peshine Smith for Seward and the Republicans. They developed the logic for tariff protection as opposed to Ricardian free-trade theory, and for government-sponsored internal improvements and a national bank to finance industry and achieve monetary independence from Britain.
It is testimony to the censorial power of subsequent free-trade ideology that these writers make no appearance in histories of economic thought. Historians have also ignored them, focusing on the Democratic Party (which meant mainly the South seeking to add slave states). At issue was whether the United States would suffer deflation and monetary and trade dependency on Britain, or would become independent. The American School opposed westward expansion and Manifest Destiny, and also opposed the Anglophilia of free traders and slave owners. The latter demanded monetary deflation to prevent industrialization so as to keep food prices low (and hence the cost of feeding slaves).
When the Civil War brought the Republicans to power, the American School found that the most prestigious colleges – founded originally to train the clergy – simply taught mainstream British free trade economics (largely because New England and southern seaboard schools favored free trade). The path of least intellectual resistance was to create a new set of schools – business schools and state land-grant colleges.
A central tenet of the American School was technological optimism in contrast to the Dismal Science of Ricardo and Malthus based on diminishing returns in agriculture and overpopulation leading to poverty. Also central was the Economy of High Wages doctrine: “It is not by reducing wages that America is making her conquests, but by her superior organization, greater efficiency of labor consequent upon the higher standard of living ruling in the country. High-priced labor countries are everywhere beating ‘pauper-labor’ countries.”
By the late 19th century nearly all the major American economists studied in Germany and followed the Historical School. Returning to America, they developed the Institutionalist School to explain why the United States should follow a different economic path from free-trade Britain. They continued to elaborate the logic for the protective tariffs that were nurturing American industry, as well as for public support for internal infrastructure improvements so as to create a low-cost competitive US economy. Most notable was Simon Patten, the first professor of economics at the Wharton School at the University of Pennsylvania. He taught protectionist trade theory and led economists into the discipline of sociology to analyze what he called the Economy of Abundance that resulted from the increasing returns in industry and agriculture.
When the United States achieved world industrial and financial dominance after World War I, it deterred other countries from protecting their own industry and agriculture – while continuing to protect its own. This about-face emulated British experience in urging free trade on other countries so as to make them dependent. This free-trade logic remains the buttress of today’s financial austerity and privatization policies imposed on debtor economies by the United States, the World Bank, and the International Monetary Fund. These policies are the opposite of America’s own protectionist takeoff, the Economy of High Wages Doctrine and the Economy of Abundance that powered its rise to global economic supremacy. The lessons of the American School of Political Economy provide a more realistic model for other countries to emulate.”